Saving money is one of the most important habits for financial stability. In India, two of the most trusted savings options offered by banks and NBFCs are Fixed Deposits (FDs) and Recurring Deposits (RDs). Both are safe, easy to understand, and ideal for people who want guaranteed returns without any risk.

But if you are confused about FD vs RD — which gives better returns, this simple guide will clear all your doubts. In this article, we will break down how both deposits work, compare interest rates, show practical examples, and help you choose the best option for your financial goals.

If you want more beginner-friendly financial guides, do check out the resources on WhiteHatFinance.com.

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What is a Fixed Deposit (FD)?

A Fixed Deposit is a savings option where you deposit a lump sum amount for a fixed time period at a fixed interest rate. The bank locks your money for a selected duration — such as 6 months, 1 year, 3 years, or even 10 years.

Your interest rate stays the same throughout the FD period, even if market rates change. This makes FDs one of the safest and most stable investment choices.

FDs are suitable for people who have a large amount of money saved and want to earn high interest on it without taking any risk.

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How Does a Fixed Deposit Work?

When you open an FD, you choose:

• The amount you want to invest
• The tenure
• The interest payout option (monthly, quarterly, or at maturity)

Once the FD starts, your money grows at the agreed interest rate. You cannot deposit more money into the same FD later, but you can open multiple FDs anytime.

Most banks also allow premature withdrawal, but you may need to pay a small penalty fee.

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What is a Recurring Deposit (RD)?

A Recurring Deposit is a savings option where you deposit a small fixed amount every month for a specific period — usually between 6 months to 10 years.

It is perfect for people who want to build savings slowly and steadily without depositing a big amount at once.

RDs are especially useful for students, salaried individuals, and anyone following a monthly saving habit.

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How Does a Recurring Deposit Work?

In an RD, you choose a monthly deposit amount (like ₹500, ₹1,000, ₹2,000, or more) and a time period. You keep depositing the same amount every month, and your money earns interest similar to FDs.

At maturity, you receive your total deposited money plus the interest earned over the tenure.

If you miss a monthly payment, some banks may charge a small penalty.

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FD vs RD: Which Gives Better Returns in 2025?

Most people want to know one thing:

Which deposit actually gives better returns — FD or RD?

The simple answer is:

Fixed Deposits usually give higher returns than Recurring Deposits.

Here’s why:

• In FDs, the entire amount earns interest for the full period.
• In RDs, your money is added monthly, so each monthly deposit earns interest for a shorter time.

This is why FDs generally provide slightly higher maturity amounts compared to RDs, even when the interest rate is the same.

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Interest Rates Comparison (FD vs RD)

Most banks offer:

• FD interest rates: 6% to 8.5% per year
• RD interest rates: 5.5% to 8% per year

However, actual rates vary depending on the bank and your chosen tenure. Senior citizens also get 0.25% to 0.75% additional interest.

Even if the interest rate is similar, the maturity value of an FD is usually higher because the full amount earns interest for the entire tenure.

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Example: FD vs RD Returns

Let’s take a simple example to understand how returns differ.

Example for FD:

Investment amount: ₹1,20,000 (one-time)
Interest rate: 7%
Tenure: 1 year

Your FD maturity value will be around ₹1,28,400.

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Example for RD:

Deposit: ₹10,000 per month
Total deposit in 12 months = ₹1,20,000
Interest rate: 7%
Tenure: 1 year

Your RD maturity value will be around ₹1,24,300 – ₹1,25,000 depending on the bank.

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Why does FD give more?

Because in RD, the last deposit earns interest for only 1 month while the first deposit earns for 12 months. So the overall interest is lower compared to FD.

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FD vs RD: Flexibility and Convenience

FD Flexibility

FDs are ideal when you have a large amount ready to invest. You can choose the tenure and choose how you want the interest to be paid. Many people prefer interest payouts monthly or quarterly to get regular income.

FDs are also useful for long-term goals like:

• Car purchase
• Higher education
• Marriage expenses
• Emergency fund storage

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RD Flexibility

RDs are ideal for developing saving discipline. You don’t need a big amount. A small amount every month is enough.

RDs are helpful for short-term goals like:

• Buying a phone
• Festivals
• Travel plans
• Building a small emergency fund

RDs are easy to manage, even for beginners.

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Risk and Safety: FD vs RD

Both FD and RD are extremely safe as they are backed by banks and NBFCs regulated by the RBI.

Your deposits are also insured up to ₹5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC).

So from a safety point of view, both FDs and RDs are excellent.

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Tax Rules for FD and RD

Interest earned on both FD and RD is taxable.

If your interest income crosses ₹40,000 in a year (₹50,000 for senior citizens), TDS will be deducted automatically.

You can reduce tax burden by investing in 5-year tax-saving FDs, but RDs do not offer tax-saving benefits.

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Who Should Choose FD?

Choose a Fixed Deposit if:

• You have a large lump sum amount to invest
• You want higher returns
• You want guaranteed income
• You are saving for a long-term goal
• You prefer stability over flexibility

FDs work well for conservative investors who want stability, guaranteed returns, and predictable income.

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Who Should Choose RD?

Choose a Recurring Deposit if:

• You want to build savings slowly
• You cannot invest a big amount at once
• You want to develop a savings habit
• You are working towards a short-term goal
• You prefer automatic monthly deposits

RDs are perfect for beginners, students, and salaried people.

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FD vs RD: Key Differences Explained Simply

An FD gives more returns because your full money stays invested from day one. An RD gives slightly lower returns because money gets added month by month.

FDs are better if you already have savings ready.
RDs are better if you want to save regularly.

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So, Which Gives Better Returns?

If your goal is maximum returns, Fixed Deposit (FD) is the winner.

If your goal is consistent monthly saving, Recurring Deposit (RD) is better.

Both are safe and guaranteed, so the choice depends on your financial situation.

For more simple financial guides, explore our blog at WhiteHatFinance.com.

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Final Recommendation

If you already have a lump sum amount, go for FD for higher returns.

If you want to start saving step by step, choose RD.

Both can be used together — many people use an RD to create a lump sum and then convert it into an FD for higher interest. This smart strategy helps you build wealth peacefully without any risk.

If you want personalised savings advice, feel free to explore guides on WhiteHatFinance.com.

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FAQs

1. Which gives more returns: FD or RD?

Fixed Deposits usually give higher returns because the entire amount earns interest for the full period.

2. Are FD and RD safe?

Yes, both are very safe as they are regulated by the RBI and insured up to ₹5 lakh under DICGC.

3. Can I withdraw money early from FD or RD?

Yes, but banks may charge a small penalty for premature withdrawal.

4. Which is better for beginners?

Recurring Deposits are better for beginners because you can start with small monthly amounts.

5. Is there tax on FD and RD interest?

Yes, both are taxable based on your income slab.