Fixed deposit vs recurring deposit: Find out which offers better returns?

However, as the rate of interest is currently around 6 percent, Shetty opined that returns from RDs and FDs after tax are quite low.

The primary difference between FDs and RDs is that the former is a one-shot investment for a set period, while the latter is a periodic investment for a fixed duration. This means RDs can be preferred by those who do not have a lump sum to invest.

The interest rates and tax liabilities of RDs and FDs are similar. However, FDs tend to give a higher return, experts suggest.

Shetty elaborated the same with an example.

“Suppose, an investor parks in Rs 24,000 in an FD at the start of the year versus Rs 2,000 per month in a recurring deposit for one year. Both products offer 6 percent rate of interest compounded quarterly. At the end of the year, the FD will give an interest of approx Rs 1,472, while an RD will give an interest of approx Rs 790," he said.

The difference is because in an FD, one invests a lump sum amount that earns interest for one year. However, in an RD, the first installment earns interest for 12 months period, the second for 11 months, third for 10 months and so on.

Hence, FDs give a higher amount on maturity.

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