Understanding The Difference Between Fixed Deposit and Recurring Deposit

Difference between Fixed Deposit and Recurring Deposit

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Fixed Deposit and Recurring Deposit are two of the most popular financial instruments among risk-averse investors. The most significant advantage of investing in one of these schemes is that the returns are fixed. Since both schemes are quite similar, many people get confused between FD v/s RD and struggle while deciding if they should invest in a Fixed Deposit or a Recurring Deposit.

In this article, let us know  everything about these investment options, including  FD v/s RD and which one should you choose.

What is a Fixed Deposit?

'To understand  FD/RD, i.e., the difference between FD and RD it’s imperative to understand both these investment instruments.

Fixed Deposit is an investment option that allows you to grow your money over a period at a fixed interest rate. Under this scheme, you have to make a one-time investment at the start of the tenure. This tenure for a fixed deposit can be anywhere between 7 days and 10 years. The principal amount is received on maturity; however you can choose to receive the interest on FD either at regular intervals or at the time of maturity

Under a fixed deposit, you can park your savings and enjoy considerable wealth growth over time. As FD interest rates remain constant, Fixed deposit  is  safe, , and offers guaranteed returns after a period of time. 

What is a Recurring Deposit? 

With recurring deposits, the customers have the flexibility to invest a sum of their choice every month and save as per their convenience. This is the primary difference between FD and RD.

Many banks offer recurring deposits with a tenure that ranges from 6 months to 10 years. The interest rates remain fixed over the tenure. And just like Fixed Deposit, the principal is received on maturity, and you can choose to receive the interest at regular intervals or at the time of maturity.

FD V/S RD: Key Differences 

Now that you know what a Fixed Deposit and a Recurring deposit are, it is essential for you to know FD v/s RD ; in other words the difference between FD and RD. Being clear about FD v/s RD can help you make an informed decision before you start investing.

Here, we have given you a detailed guide on FD v/s RD,  the difference between the two types of term deposits.

1. Investment Frequency  

In a fixed deposit account, you have the option to invest a a large sum in one go. However, in a recurring deposit, you can invest a small amount of money at regular intervals  This is the basic FD v/s RD difference.

2.  Deposit Tenure

In a fixed deposit account, the time frame ranges between 7 days to 10 years. An individual also has the freedom to select the timeframe. However, in a recurring deposit account, the time frame is between 6 months to 10 years. Here, the individual does not have a choice to select the time frame for investment. This is also a key difference between FD and RD.

3. Interest Amount

There is a difference between FD and RD  interest amount you earn at the end of the investment tenure. It is much higher for FD than in a recurring deposit.

4. Interest

In a fixed deposit account, the interest is paid monthly/ quarterly or on the maturity of the plan. However, in a recurring deposit account, the interest is only paid to the person at the end of the plan.

5. Motivation

In a fixed deposit, you earn money as interest when you invest a surplus amount. In the case of a recurring deposit, you develop a habit of saving money as you invest a certain amount of time at a fixed interest rate for a fixed time period.

6. Default Clause

In a fixed deposit account, an individual cannot miss payment due dates because the payment is made in one go. However, when it comes to a recurring deposit, if an individual does not pay amount for 6 consecutive months, then the concerned bank has the right to close their RD account.


Fixed Deposit

Recurring Deposit

Deposit Frequency


Monthly or Quarterly

Minimum Deposit

Rs. 100

Rs. 1000


7 days to 10 years

6 months to 10 years

Interest Payout

Monthly or Quarterly

Mostly at the time of maturity

Auto-Renewal Option


Not Available

Common Features of FD and RD 

In the previous section, you learned about the difference between FD and RD . Now we are going to discuss some common features which FD and RD share.

1. Fixed Income Investments: Both  fixed deposit and recurring deposit are fixed-income investments. They offer a guaranteed return on maturity. The interest rate is known to the individual before they invest their money. Moreover, the interest rate does not change during the time period of the deposit.

2. Guaranteed Returns:  The returns for FD and RD can be calculated even before investing in them. You can get an idea of the maturity amount based on the tenure, amount, and RD or FD interest rates. This can help you plan your financial goals beforehand.

3. Premature Withdrawal: You can withdraw from an FD or RD before maturity. But you will be required to pay the penalty. The penalty amount may increase with subsequent withdrawals.

4. Loan Facility: Another common feature of fixed deposit and  recurring deposit  is that you can avail loan against both of them.  The withdrawn amount can be used for any motive. However, the loan amount varies from bank to bank.

FD v/s RD: Which Should You Choose? 

At this point, you might be wondering whether you should invest in a fixed deposit or a recurring deposit. Here's how you can make a decision.

If you have a considerable sum of money that can be invested as a lump sum, then fixed deposits can be ideal for you. You can earn more as FD interest rates are usually higher than RD interest rates. You can invest in the cumulative FD, where the interest is compounded.

On the other hand, if you have sizeable excess income such as Rs. 1000 that you can invest each month, recurring deposits are ideal for you. You can keep depositing a small fixed sum each month. The returns will be credited to your account on maturity.

Frequently Asked Questions (FAQs)

Q1. What is a Fixed Deposit?

A: A Fixed Deposit (FD) involves depositing a certain amount with a banking or a non-banking institution for a fixed period of time and for a fixed rate of interest.

Q2. What's the minimum and maximum tenure of investment in an FD account? 

A: While the minimum tenure of a fixed deposit  is seven days; the maximum tenure can go up to 10 years.

Q3. Can I break a fixed deposit before maturity?

A: Yes, premature withdrawals of your fixed deposit is allowed in case you need funds immediately.However, you will be subject to penalty charges.

Q4. What happens if the depositor passes away?

In case of unforeseen circumstances, the nominee can claim the fixed deposit amount on maturity. 

Q5. How does a loan against FD work?

A: Instead of paying the penalty by breaking your FD, you can opt for a loan against the deposited amount. That way you can ensure availability of funds for emergency and get interest at the same timeDepending on the bank, th loan of 70-90%  of your FD amount can be availed by you.

Q6. What is a Recurring Deposit? 

A: A recurring deposit is a unique term deposit that allows people to make regular deposits in their bank account. In return, they can earn decent returns on their investment.

Q7. Can I change the nominee(s) for my Recurring Deposit?

A: Yes, you can make the change in nominees for your recurring deposit account. You will have to submit a form in your concerned bank.

Q8. Is there a monthly or quarterly interest payout option in RD?

A: No. The interest will be paid on maturity or on premature closure of the recurring deposit

Q9. How much penalty would I have to pay if I withdraw my RD prematurely? 

A: Penalty charges upon a premature withdrawl depends from bank to bank. However, most banks levy a penalty of 0.5% o and then further reduce the the RD interest that is to be paid to the account holder on maturity by 1-2%.

Q10. Can I change my   recurring deposit’s tenure and installment due date (auto debit date)? 

A: No, the tenure and instalment due date (auto debit date) of an existing recurring deposit cannot be changed once set.

Q.11 Can I get a credit card on FD?

A:  Yes, as FD can be used to secure credit, one can also get a credit card on FD. Most banks provide this facility to individuals who have an unreliable credit score or no credit history.



ARN No: Apr22/Bg/07

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