Fixed Deposit vs RD

An FD is a term deposit offered by banks and other financial institutions where you agree to deposit a certain amount of money for a specific period of time. In return, the bank pays you a fixed interest rate on your deposit for the duration of the term. They are typically used by people with a large amount of money to save and who do not need access to that money for a specific period.

A recurring deposit (RD) is also a term deposit offered by banks and other financial institutions where you make regular, relatively smaller deposits over a tenure than a single lump sum deposit, as in the case of an FD. The interest rate on a recurring deposit is typically lower than the interest rate on a fixed deposit (FD) because the bank only has the use of the deposited amount for the duration of that particular deposit.
Recurring deposits are a good option for individuals who want to save money regularly but may not have enough to deposit all at once. They are also generally more flexible than fixed deposits, as you can make additional deposits or withdraw your money ( you will usually have to pay a penalty).

Here are the differences between FD and RD

Let’s consider some examples in the table below. In the first example, you invest Rs 24000 annually in FDs to match the investment in the recurring deposit, which is Rs 2000 per month for 3 years. The interest offered is 7.2% for FDs compounded annually, and for RDs, it is compounded monthly.

Return on FD

For the 2nd year, Rs 48000 deposited at 7.2% in the first year is earning an interest of Rs 3456, making the amount at the end of the first year Rs 51456. This Rs 51456 becomes the year's principal and earns Rs 3705 as interest, resulting in a maturity amount of Rs 55161. You can similarly calculate the maturity amount for Rs 72000 deposited for 3 years.

Return on RD

For RD the interest and the maturity amount have been calculated in the following way.

Difference between FD and RD Maturity Amount

As you can see in the above tables, you will receive Rs 25728 in an FD after a year, while in an RD, you will receive Rs 24957. So, the recurring deposit in a year will earn you Rs 771 less than a fixed deposit. But, this difference increases when we invest Rs 24000 in a fixed deposit for 3 years and Rs 2000 p.m. in a recurring deposit for a period of 3 years. After 3 years, you will receive Rs 88699 in an FD, while in the recurring deposit, you will receive Rs 80581 on maturity.

In both these forms, the deposited amount earns a predetermined interest. The returns are nearly guaranteed since these deposits are mostly made with regulated entities. Further, these deposits of up to Rs. 5 lahks are insured by the Deposit Insurance and Credit Guarantee Institution (DICGI). Furthermore, both instruments come with the facility of premature withdrawal, and one can avail of loans against using these instruments as collateral. 
While both FD and RD give near risk-free returns and are unaffected by market changes, the effective interest on FDs turns out to be higher than that on RDs, this is more obvious in the case of a cumulative FD. When choosing between RD and FD, you must consider the surplus amount in hand, the interest rates offered and the financial goals you aim to achieve.