RD: Recurring Deposit Explained
A Recurring Deposit (RD) is a bank or post office scheme where you invest a fixed amount every month for a chosen tenure. At maturity, you receive the total invested amount plus interest. Unlike FD, RD does not require a lump sum—you save regularly, making it ideal for salaried individuals. This guide explains what RD is, how it works, how interest is calculated (compound interest, quarterly compounding), the formula, and examples. All content is focused on RD mechanics and interest calculation.
Key Takeaways
- RD = monthly fixed deposit: Same amount each month. Tenure 6 months to 10 years
- Interest compounded quarterly: Same as FD. Rate typically matches FD for same tenure
- Maturity formula: Sum of future value of each monthly installment. Each earns interest for remaining months
- Tax: Interest fully taxable. TDS if interest >₹40,000/year (from same bank across FDs/RDs)
- Use case: Regular savers, emergency fund, short-term goals. Minimum often ₹100–500/month
How RD Works
- Open RD: Choose bank or post office. Fix monthly amount and tenure. Auto-debit from savings account optional.
- Monthly deposit: Same amount each month, same date. Missed payment may attract penalty or break the RD.
- Interest: Compounded quarterly. Rate fixed at opening. Typically same as FD for that tenure.
- Maturity: At end of tenure, principal + interest paid. Can also be extended or closed early with penalty.
How RD Interest Is Calculated
RD interest is compounded quarterly. Each monthly installment is treated as a separate deposit. The first installment earns interest for all months (e.g. 36 months in a 3-year RD). The second earns for 35 months, and so on. The last installment earns for 1 month. The total maturity is the sum of the future value of each installment. Formula: M = P × n × (n+1)/(2×12) × (1 + r/4)^(4t/12) or similar, depending on the exact method. Banks use the quarterly compounding formula. The effective yield is slightly lower than a same-rate FD of equivalent lump sum because in RD you deploy money gradually.
RD Formula (Simplified)
Worked Example
📊 ₹5,000/month, 3 years, 6.5% p.a. (quarterly compounding)
RD vs FD: Interest Difference
For the same total amount and tenure, FD (lump sum) usually gives slightly higher maturity than RD because in FD the full amount earns interest from day one. In RD, you add money gradually, so the average time in the bank is lower. The difference is small for short tenures but noticeable over 5–10 years. RD's advantage is the discipline of regular saving—you don't need a lump sum upfront.
Tax on RD Interest
- Taxable: Interest is fully taxable as income from other sources. Added to your total income, taxed at slab rate.
- TDS: If total interest from a bank (FD + RD + SB) exceeds ₹40,000 (₹50,000 for seniors), bank deducts TDS at 10%.
- Form 15H/15G: Submit to avoid TDS if total income is below taxable limit.
- 5-year tax-saving FD: Has 80C benefit. RD has no 80C benefit.
Premature Withdrawal
- Allowed: Most banks allow premature closure. Interest may be paid at 1–2% lower than contracted rate.
- Penalty: Some banks reduce interest for premature closure. Check before opening.
- Post office RD: 1 year minimum before premature closure. Penalty on interest.
Use Our RD Calculator
Enter monthly amount, tenure, and interest rate. Get maturity value and interest earned. Compare with FD for same total investment.
Disclaimer
Interest rates vary by bank and tenure. Check current rates. Post office RD rates may differ from banks.