FD vs RD: Which is Better?


When it comes to investing your money, Fixed Deposits (FD) and Recurring Deposits (RD) are two popular options that provide a safe and secure way to grow your savings. However, they have distinct features that make each suitable for different financial goals. In this comprehensive guide, we pit FDs vs RDs, comparing their key aspects to help you determine which one is better suited to your needs.

What is Fixed Deposit (FD)?

A Fixed Deposit (FD) is a financial instrument offered by banks and financial institutions that allows you to deposit a lump sum amount for a specified period at a fixed interest rate. The interest rate is predetermined at the time of deposit, and the principal amount, along with the interest, is returned to you upon maturity. Fixed Deposits are known for their reliability and stable returns.

One of the most attractive features of FDs is the guaranteed return. Since the interest rate is fixed at the time of investment, you can easily calculate the returns you will receive at maturity. This predictability makes FDs a favored choice for risk-averse investors who seek to protect their capital while earning a reasonable return.

What is a Recurring Deposit (RD)?

A Recurring Deposit (RD) is another financial product provided by banks. In an RD, you make regular, periodic deposits, usually monthly, into your account over a predetermined period. The interest is calculated on the total balance, which increases with each deposit. Upon maturity, you receive the total amount deposited along with the accrued interest.

RDs are an ideal option for individuals who may not have a significant lump sum to invest but can commit to regular savings. It promotes financial discipline by encouraging consistent monthly contributions, which can be an excellent way to build up savings over time.

Difference Between FD & RD

Now, let's explore the critical differences between Fixed Deposits (FDs) and Recurring Deposits (RDs) to help you make an informed decision.

Fixed Deposits Recurring Deposits

Anyone with a lump sum amount can open an FD. It is a suitable choice for those who have a significant sum to invest.
FDs are often favored by retirees or those who have received a windfall amount, like an inheritance or the sale of a property.

RDs are more accessible as they require smaller monthly deposits. This makes them a good option for individuals with limited savings, including young professionals, students, and small-scale savers.


Fixed Deposits come with a predetermined tenure, which can range from a few months to several years. You cannot add to or withdraw from the deposit during this period. The fixed tenure provides clarity in your investment horizon, which can be useful for financial planning.

RDs also have a fixed tenure, but they offer more flexibility. You can choose a tenure that suits you, typically ranging from six months to ten years. Even if you miss a few monthly deposits, it usually doesn't lead to penalty charges, although the interest may be adjusted accordingly.


At the end of the tenure, you receive the principal amount along with the interest. FDs offer a one-time payout, which can be advantageous if you have a specific financial goal, such as buying a car or funding a vacation, that requires a lump sum amount at a particular time.

In an RD, the maturity amount is the total of all monthly deposits, including the interest. You will get lump sum amount on maturity. RDs are well-suited for those who prefer to receive regular income or those saving for recurring expenses, such as annual insurance premiums or tuition fees.


Withdrawals from FDs before maturity can lead to a penalty, and you may also receive a lower interest rate on the remaining tenure. They are typically less flexible for early access. However, there are also options for premature withdrawal with reduced interest rates or even the option of taking a loan against the FD.

RDs are relatively more flexible. While there may be some deductions in interest when you make a premature withdrawal, you can access your funds without significant penalties. This flexibility can be advantageous in times of unexpected financial needs.

Minimum Investment Limit

Fixed Deposits usually require a higher minimum investment, making them more suitable for those with substantial savings. Banks often set the minimum deposit amount for FDs at a level that may be out of reach for individuals with limited funds.

RDs have a lower minimum investment, making them accessible to individuals with limited funds. The affordable monthly deposit requirement allows more people to participate and start building their savings gradually.


In conclusion, both Fixed Deposits (FDs) and Recurring Deposits (RDs) offer unique benefits, and the choice between them should align with your financial objectives and your ability to invest at a given moment.

If you have a lump sum amount and don't require periodic payouts, FDs with their higher interest rates may be a better option. FDs are also ideal for those who want to secure their savings for a fixed period without any liquidity needs.

On the other hand, if you have smaller savings and prefer periodic payouts, RDs offer greater flexibility. RDs can be an excellent choice for those who want to build their savings over time through consistent monthly contributions.

In both cases, it's essential to compare the interest rates and terms offered by different banks to maximize your returns. Ultimately, the decision between FD and RD should align with your financial objectives and your ability to invest at the given moment. For instance, regardless of whether you opt for an Fixed Deposit by Unity Bank or a Recurring Deposit, both are valuable tools that can help you achieve your financial goals.