How to Choose the Best RD Tenure
Banks offer RD tenures from 6 months to 10 years. Longer tenure usually means more interest, but it also means locking money for longer. The 'best' tenure depends on your goal, liquidity needs, and the interest rate curve. This guide covers how tenure affects RD returns, short-term vs long-term trade-offs, rate differentials across tenures, and how to pick a tenure that fits your goal. All content is focused on RD tenure selection.
Key Takeaways
- Longer = more interest: Each installment earns for more months. But lock-in and rate curve matter
- Rate curve: Often 1–3 years get similar rates. 5+ years may get 0.25–0.5% extra
- Match goal to tenure: Trip in 1 year = 1-year RD. Child's college in 5 years = 5-year RD
- Liquidity: Shorter tenure = earlier access. Don't lock 10 years if you might need cash
- No single best: Balance return, goal timeline, and flexibility
Common RD Tenures
- 6 months – 1 year: Emergency fund build-up, short-term goal. Lower total interest but quick access.
- 1–2 years: Vacation, gadget, minor expense. Good balance of return and liquidity.
- 3–5 years: Child's education, wedding, down payment. Higher rates, meaningful corpus.
- 5–10 years: Long-term goal, conservative investor. Maximum interest, longest lock-in.
How Tenure Affects Returns
In RD, each monthly installment earns interest for the remaining months. In a 3-year RD, the first ₹5,000 earns for 36 months, the second for 35, and so on. Longer tenure means each rupee works longer, so total interest is higher. Example: ₹5,000/month at 6.5% for 1 year gives ~₹39,000 maturity; for 5 years, ~₹3.5 lakh. The absolute interest earned rises sharply with tenure. However, banks often offer similar rates for 1–3 years; the jump may come at 5+ years. Check the bank's rate card before deciding.
Interest Rate Curve by Tenure
📊 Typical bank RD rates (illustrative)
Short-Term vs Long-Term RD
- Short-term (6 months – 1 year): Lower total interest, but you get money sooner. Use for near-term goals or building emergency fund in tranches.
- Long-term (5–10 years): Maximum interest per rupee, but money is locked. Use only if you're sure you won't need it before maturity.
- Middle (2–3 years): Balanced. Common for goals like vacation, car down payment, or appliance purchase.
Factors to Consider
- Goal timeline: When do you need the money? Set tenure = goal date.
- Liquidity: Could you need cash early? Prefer shorter tenure or ladder (multiple RDs of 1–2 years).
- Rate differential: If 5-year rate is only 0.25% more than 2-year, shorter may be better for flexibility.
- Monthly capacity: Can you sustain the amount for the full tenure? Don't overcommit.
Laddering Strategy
Instead of one 5-year RD, open five 1-year RDs (one each year). Each matures annually, giving you access while keeping rest invested. Or: 2-year RD every 6 months. Laddering improves liquidity without sacrificing too much return. Useful when you're unsure of exact need date.
Use Our RD Calculator
Enter monthly amount and compare 1-year, 3-year, and 5-year tenures. See maturity and interest for each. Pick tenure that matches your goal.
Disclaimer
Interest rates vary by bank and change over time. Check current rates before opening RD.