Fixed Deposit and Recurring Deposit are the most popular investment products in India, especially if you are looking for a risk free investment. One of the major advantages of making investment in a fixed deposit or recurring deposit is that there are fixed returns over a specified period of time with no risk involved. Bank Fixed Deposits and Recurring Deposits are safer investment options than making investments in equities as these deposits are not market linked and provide a fixed rate of return.
Both fixed deposits and recurring deposits are offered by all the major banks and financial institutions. In both the schemes, you can invest a specific amount and on the amount invested, you will receive a fixed interest. At the end of tenure, you will receive both the amount invested as well as the interest. But many a times, it is witnessed that investors get confused whether to invest in a fixed deposit scheme or a recurring deposit to achieve their investment goals. Individuals get attracted to these investment schemes as they offer fixed returns with safety of money invested. But, when you make comparison between the two investment options, a fixed deposit earns you higher than a recurring deposit. Let us discuss how these two deposits differ in the earnings and which one you should opt.
What is the difference between Recurring Deposit and Fixed Deposit?
If you are thinking of making investment in either fixed deposit or recurring deposit, then there is a primary difference that you should be aware of before making an investment in either one of them. While both recurring deposit and fixed deposit is for a fixed tenure, fixed deposit investors need to invest an amount once while recurring deposit investors get the privilege of investing a fixed amount at regular intervals.
What is a Fixed Deposit?
Individuals who opt to invest in fixed deposits will have to choose a tenure, which usually ranges from 7 days to 10 years and must deposit an amount once. The interest on the amount will be credited to the investor’s account on a monthly or a quarterly basis.
Also Read – Interest Rates of Tax-Saving Fixed Deposit
What is a Recurring Deposit?
Individuals who opt to invest in recurring deposits will have to choose a tenure, which usually ranges from 1 year to 10 years depending on your bank or financial institution. But, they can deposit a fixed amount every month and can earn interest on a monthly basis. The interest is paid along with the amount invested at maturity. The interest on recurring deposit remains the same throughout the term once you have made the investment. But, no matter what is the interest rate you get on you recurring deposit, you can easily calculate your interest and earnings on your recurring deposit using a RD calculator.
Features of FD and RD
Both fixed deposits and recurring deposits are fixed investment schemes available with all the major banks and financial institutions. On the amount invested, banks will pay you a fixed interest over a specified period. At the end of the fixed tenure, you will receive the maturity amount which is the sum of your amount invested along with the accumulated interest that you earn from your bank or financial institution.
Income from both the fixed deposit and recurring deposit schemes are taxable as per the Income Tax Act, 1961. The interest received from these two deposit schemes is added to your total annual income and taxed at your personal income tax rate. This means that if you fall under the 30% tax slab, the interest earned from fixed and recurring deposit will be taxed at the same rate i.e. 30%. In both fixed deposit and recurring deposit, banks deduct TDS (Tax Deducted at Source) if the interest income in a year is more than Rs. 40,000. No tax will be deducted in case of fixed deposit and recurring deposit if the total interest income is less than Rs. 40000 in a year.
Under Section 80C of the Income Tax Act, 1961, investment amounting to Rs. 1.5 lakh can be claimed as a tax deduction. Please note that this amount includes all types of investment including tax-saver FD.
Fixed Deposit v/s Recurring Deposit – Which deposit can earn you more?
When you compare fixed deposit and recurring deposit, you will witness that a fixed deposit will earn you more income than a recurring deposit.
Let’s consider 5 different examples in the table below. In the first example, you make an investment of Rs 24000 for tenure of 1 year and Rs 2000 p.m. for the same tenure. Then in the second example, let us increase the investment to Rs 48000 in fixed deposit for tenure of 2 years and Rs 2000 p.m. for 2 years as well. So, with every year we are increasing the amount in fixed deposit by Rs 24000 to match the investment in recurring deposit which is Rs 2000 per month. The comparison table below is based on an assumption that the bank or financial institution is offering you a 7.2% rate of interest which is compounded monthly.
FD v/s RD. Which is Better?
Fixed Deposit Amount (a)
Interest Earned on FD (7.2%) (b)
FD Maturity Amount (c)
Recurring Deposit Amount p.m. (d)
Interest Earned on RD (7.2%) (e)
RD Maturity Amount (f)
|Rs 24957||Rs 829|
|2 Years||Rs 48000||Rs 7410||Rs 55410||Rs 2000||Rs 3771||Rs 51771||Rs 3639|
|3 Years||Rs 72000||Rs 17301||Rs 89301||Rs 2000||Rs 8581||Rs 80581||Rs 8720|
|4 Years||Rs 96000||Rs 31930||Rs 127930||Rs 2000||Rs 15535||Rs 111535||Rs 16395|
|5 Years||Rs 120000||Rs 51814||Rs 171814||Rs 2000||Rs 24793||Rs 144793||Rs 27021|
*The above table is based on an assumption that the interest rate provided by your bank is 7.2% which is compounded monthly.
As you can see, after a year you will receive Rs 25786 in a fixed deposit while in recurring deposit you will receive Rs 24957. So, the recurring deposit in a year will earn you Rs 829 less than a fixed deposit. But, this difference increases when we invest Rs 120000 in a fixed deposit for a term of 5 years and Rs 2000 p.m. in a recurring deposit for a period of 5 years. After 5 years, you will receive Rs 171814 in a FD while in recurring deposit you will receive Rs 144793 on maturity.
The primary reason for the difference is that in FD you invest a lump sum amount and so the entire money earns interest for the specified period. But in a recurring deposit the first installment earns interest for 12 months period, the second for 11 months, third for 10 months and so on. Due to this variation a fixed deposit is able to earn you more on maturity. For easy calculations, you can also calculate the return on your fixed deposit and the maturity amount using a FD calculator in just a click as it helps to solve the complex calculations above.
What Should You Choose – FD or RD?
Individuals who do not have a sum of money to invest in a fixed deposit but can afford small portion of investment amount from income every month can opt for a recurring deposit instead of a fixed deposit. But, if you have a lump sum amount to invest at one go, fixed deposit is the right investment option for you. Both fixed deposit and recurring deposit are risk free investments. Fixed deposit will earn you more than a recurring deposit but some individual also prefer recurring deposit over a fixed deposit as they do not have enough money to invest at one go.