FD vs RD: two ways to save in a bank

A fixed deposit (FD) and a recurring deposit (RD) are both savings products offered by banks, where the bank pays you interest at a rate agreed up front. They are not investments in the market; they are deposits. The difference between them is simply how the money goes in.

The fixed deposit

With an FD you place a single lump sum for a chosen term, and the whole amount earns interest from day one until it matures. It suits money you already have and will not need during the term — a bonus, a maturity from elsewhere, savings you want to park somewhere stable. The rate is fixed when you open it, so you know the terms in advance.

The recurring deposit

With an RD you deposit a fixed amount every month for a chosen term, and each instalment earns interest only from the month it is paid in. Because the later instalments are invested for less time, they earn less than the earlier ones. An RD suits money you are saving from income — a way to build a lump sum out of a monthly habit rather than needing one up front.

The core difference

The distinction is lump sum versus monthly. An FD puts the full amount to work immediately; an RD builds the amount over the term, so the same total contributed earns less in an RD than it would in an FD, simply because on average the money was invested for less time. That is arithmetic, not a fault — the RD is solving a different problem, namely saving when you do not yet have the lump sum.

What each is good for

Put simply: an FD fits a lump sum you already hold; an RD fits building one from monthly savings. Many people use both at different times. To see how a given lump sum in an FD compares with the same money drip-fed through an RD, our FD vs RD calculator shows the arithmetic on your own figures.

Both are deposits, not funds

An FD and an RD both offer a rate the bank contracts to pay, with no market risk to the amount — which is their appeal and their limit. How a bank deposit compares with a market-linked mutual fund, on risk, return and how inflation touches each, is a different question covered in SIP or a fixed deposit. This article is only about the two bank products side by side.