When it comes to safe and reliable investment options in India, Fixed Deposit (FD) and Recurring Deposit (RD) remain two of the most popular choices. Both are offered by banks, post offices, and financial institutions, and they cater to individuals who want guaranteed returns with minimal risk. While they share similarities, their structures, features, and tax rules differ. This updated guide reflects the latest 2025 rules and regulations so you can make an informed decision.
Table of Contents
What is a Fixed Deposit (FD)?
A Fixed Deposit (FD) allows you to invest a lump sum amount for a predetermined tenure at a fixed interest rate. The amount and interest are repaid at maturity or at regular intervals, depending on the option chosen.
Key Features of FD
- Lump Sum Investment: Deposit a one-time amount at the beginning.
- Tenure: From 7 days to 10 years.
- Fixed Interest Rate: Locked at the time of investment and remains unchanged.
- Payout Options: Interest can be received monthly, quarterly, annually, or at maturity.
- Loan Facility: Banks provide loans against FD for liquidity.
Benefits of FD
- Low Risk: Assured returns unaffected by market conditions.
- Better Than Savings Account: Interest is higher than regular savings accounts.
- Flexible Tenure: Wide range of tenure choices.
- Tax-Saving Option: 5-year tax-saving FDs qualify under Section 80C for deduction up to ₹1.5 lakh.
Read Also: What Is SIP? A Beginner’s Guide to Systematic Investment Plans
What is a Recurring Deposit (RD)?
A Recurring Deposit (RD) allows you to invest a fixed amount every month for a predetermined tenure. At maturity, you receive the accumulated amount plus interest.
Key Features of RD
- Monthly Contribution: Deposit a fixed amount each month.
- Tenure: Ranges from 6 months to 10 years.
- Assured Returns: Interest rates remain fixed for the duration.
- Accessibility: Ideal for individuals who cannot invest a lump sum.
- Premature Withdrawal: Permitted, but with penalties.
Benefits of RD
- Savings Discipline: Encourages regular savings.
- Accessible Investment: Small monthly deposits make it easy.
- Low Risk: Returns are predictable and guaranteed.
- Goal-Oriented Savings: Suitable for short- and medium-term goals like vacations, education, or small purchases.
FD vs RD: Key Differences
| Aspect | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Deposit Type | One-time lump sum | Fixed monthly deposits |
| Tenure | 7 days – 10 years | 6 months – 10 years |
| Flexibility | Requires large sum upfront | Suitable for regular income earners |
| Interest Payout | Monthly, quarterly, annually, or at maturity | Paid at maturity |
| Best For | Investors with lump sum funds | Individuals preferring small savings |
| Loan Facility | Available against FD | Available against RD |
| Premature Withdrawal | Allowed with penalty | Allowed with penalty |
Interest Rates in 2025
- FD and RD rates currently range between 5% and 8% per annum, depending on the bank, tenure, and type of scheme.
- Senior citizens typically receive 0.25% to 0.75% higher interest rates.
- FDs often provide slightly higher returns than RDs because the lump sum earns interest for the entire tenure, while in RDs, each monthly installment earns interest for different durations.
Tax Implications (2025 Rules)
Fixed Deposit (FD)
- Taxation: Interest is taxable as per income tax slab.
- TDS Threshold (Updated 2025): Banks deduct TDS if annual FD interest exceeds:
- ₹50,000 for regular individuals (raised from ₹40,000 earlier).
- ₹1,00,000 for senior citizens.
- Tax-Saving FD: Eligible for deduction under Section 80C (up to ₹1.5 lakh) with a 5-year lock-in. Premature withdrawal cancels tax benefits.
Recurring Deposit (RD)
- Taxation: Interest is taxable as per income tax slab.
- TDS: Same as FD — applicable if total interest exceeds thresholds above.
- No Section 80C Benefit: RDs do not qualify for tax-saving deductions.
Senior Citizen Benefits
- Senior citizens can claim additional deductions on interest income under Section 80TTB, up to ₹50,000 per year, over and above the TDS exemption.
Which One Should You Choose?
Choose FD if:
- You have a lump sum amount to invest.
- You want consistent and relatively higher returns.
- You need long-term investment security.
- You wish to avail tax-saving benefits with a 5-year FD.
Choose RD if:
- You prefer small monthly contributions over lump sum.
- You want to build savings discipline.
- You are saving for short- or medium-term goals.
- You have a salaried income and want structured savings.
Practical Examples
- FD Example: Investing ₹5,00,000 in a 5-year FD at 7% annual interest could yield over ₹7,00,000 at maturity (depending on compounding frequency). This is best for someone with surplus funds.
- RD Example: Depositing ₹5,000 monthly in an RD for 5 years at 7% annual interest would give a maturity value of about ₹3.6 lakh. This suits salaried individuals who save steadily.
Final Note
Both FD and RD remain secure, low-risk investment options in 2025. If you have lump sum savings, an FD is ideal. If you prefer smaller, regular contributions, an RD works better. Your choice should depend on financial goals, available funds, and tax considerations. By staying updated with the latest rules — like the revised TDS thresholds and senior citizen benefits — you can maximize your savings efficiently.
References
- ClearTax – TDS on Fixed Deposit Interest
- ClearTax – Tax-Saving Fixed Deposits
- PNB MetLife – Union Budget 2025 FD Tax Benefits
- Axis Bank – Tax-Saver Fixed Deposit
- Fincart – TDS on Fixed Deposits
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