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RD

Investment

Recurring Deposit

A bank deposit where you invest a fixed amount every month for a set tenure, earning compound interest and a lump sum at maturity.

Definition

A Recurring Deposit (RD) is a type of term deposit offered by banks and post offices in India that allows individuals to deposit a fixed sum of money every month for a predetermined tenure and earn a fixed rate of interest. At maturity, the depositor receives the accumulated principal plus the compound interest.

RD is designed for disciplined monthly savers who may not have a large lump sum to invest at once but can set aside a fixed amount each month. It is a capital-protected instrument with guaranteed returns, unlike mutual fund SIPs which are market-linked.

Most banks allow RD tenures from 6 months to 10 years. The interest rate is fixed at the time of opening the account and remains constant throughout the tenure.

Formula

RD uses compound interest, calculated quarterly in most banks:

Maturity Value = P × (1+r/n)^(nt) × [(1+r/n)^(n×tenure) − 1] / [(1+r/n)^n − 1]

A simplified approximation for monthly RD with quarterly compounding:

M ≈ P × n × (1 + r × (n+1) / (2×12×100))

Where P = monthly deposit, r = annual interest rate (%), n = total months.

Worked Example

You open an RD of ₹5,000/month for 3 years (36 months) at 7% per annum.

Using the approximation: M ≈ 5,000 × 36 × (1 + 7 × 37 / 2400) ≈ 5,000 × 36 × 1.1079 ≈ ₹1,99,422

Total amount deposited = ₹1,80,000. Interest earned ≈ ₹19,422. Compare this with a SIP of the same amount in an equity fund — the SIP could yield more over time, but without the capital guarantee. Use the FD vs RD calculator to compare.

Key Things to Know

  • Post Office RD: Post Office RDs (National Savings Recurring Deposit Account) offer government-backed security with interest rates set by the Ministry of Finance quarterly. The current rate is 6.7% (as of 2024–25).
  • TDS on RD: Banks deduct TDS if total interest across all deposits exceeds ₹40,000/year. Submit Form 15G/15H if your income is below the taxable threshold to avoid TDS.
  • RD vs SIP: RD is a guaranteed-return instrument suitable for short-to-medium-term goals (1–5 years) or risk-averse investors. SIP in equity funds is better for long-term (7+ years) wealth creation and inflation-beating returns.
  • Missed instalments: Missing an RD instalment attracts a penalty (typically ₹1–2 per ₹100 per month). More than 4–6 consecutive missed payments may result in account closure.
  • Nomination: Always add a nominee to your RD account. This ensures the maturity amount is easily transferred to the nominee in case of the depositor's death, without requiring probate.

Related Calculators

FD vs RD Calculator →Compare Fixed Deposit and Recurring Deposit returns on the same investment. See whether a lumpsum FD or monthly RD deposits earn more interest at the same rate.
SIP vs RD Calculator →Compare SIP and Recurring Deposit returns on the same monthly investment. See how much more a market-linked SIP earns over a fixed-rate RD for any tenure.

Related Terms

FDFixed DepositSIPSystematic Investment PlanTDSTax Deducted at Source
Frequently Asked Questions
What is the difference between RD and SIP?
Both RD and SIP involve regular monthly investments. RD is a bank product offering fixed, guaranteed returns. SIP invests in market-linked mutual funds with variable but potentially higher returns. RD is ideal for capital protection; SIP is better for long-term wealth creation.
Is RD interest taxable?
Yes. RD interest is taxable as 'Income from Other Sources' at your slab rate. Banks deduct TDS at 10% if the total interest in a financial year exceeds ₹40,000 (₹50,000 for senior citizens). Submit Form 15G/15H if your income is below the taxable threshold.
Can I withdraw from RD before maturity?
Yes, but premature withdrawal incurs a penalty — typically 1–2% lower interest rate than the contracted rate. The principal deposited up to that point is returned with the reduced interest. Some banks offer no-penalty partial withdrawal.
What is the minimum RD amount?
Most banks allow RDs starting from ₹100/month. Post Office RDs start at ₹100/month. The tenure can range from 6 months to 10 years depending on the bank.
How does RD compare to a lump-sum FD in terms of returns?
If you have the lump sum available upfront, an FD will give a higher effective return than an RD for the same tenure, because the entire principal earns interest from day one. RD is better when you are building savings gradually each month.