Fixed Deposit (FD): Investing a Lump Sum
A Fixed Deposit involves depositing a lump sum with a bank or financial institution for a chosen tenure, at a fixed interest rate agreed at the time of deposit. The entire amount earns interest for the whole tenure, and you receive the principal plus accumulated interest at maturity (or as periodic payouts, if you choose that option instead of cumulative interest).
Recurring Deposit (RD): Building Savings Monthly
A Recurring Deposit is designed for people who want to save a fixed amount every month rather than invest a lump sum upfront. Each monthly instalment earns interest from the date it’s deposited until maturity — so, similar to a SIP, your first instalment earns interest for the full tenure while your last instalment earns interest for only a short period.
How the Interest Calculations Differ
FD interest is a standard compound-interest calculation on a single lump sum. RD interest calculation must account for each monthly deposit having a different holding period, so it uses a formula that effectively treats it like a series of smaller deposits, each compounding for the remaining months until maturity. This is why an RD and an FD with the “same” interest rate and tenure don’t produce directly comparable maturity amounts — the amount actually invested over time is very different.
Which One Fits Your Situation
If you already have a lump sum you don’t need for a while, an FD lets that whole amount start earning interest immediately. If you don’t have a lump sum but can commit to saving a fixed amount every month, an RD builds a maturity corpus over time out of smaller, manageable contributions — effectively a disciplined saving habit with a defined payout date.
Common Ground Between the Two
Both FDs and RDs are typically offered by the same banks and post offices, both offer fixed, predictable returns (unlike market-linked investments), and both usually allow premature withdrawal subject to a penalty. Comparing the two isn’t about which is “better” in general — it’s about which matches whether you’re starting with a lump sum or building savings incrementally.