How RD interest works
A recurring deposit is a disciplined cousin of the fixed deposit: instead of one lump sum, you commit a fixed amount every month for a fixed tenure, and the bank pays the same rate it offers on FDs of that tenure. Interest is compounded quarterly, with each monthly instalment earning interest for the time it stays deposited.
Because later instalments have less time to grow, the total interest on an RD is roughly half of what the same total amount would earn as an up-front FD — that's not a flaw, it's simply because your money arrives gradually. For example, ₹5,000 per month at 7% for one year matures to about ₹62,309, earning ₹2,309 on the ₹60,000 you deposited.
RD vs SIP vs FD — picking the right monthly habit
RDs and SIPs both build a monthly saving habit, but they are different animals. An RD gives a guaranteed, fixed return and suits short horizons — an emergency fund, next year's school fees, a wedding two years away. A SIP into an equity fund has no guarantee but has historically returned more over 7+ years. An FD beats both only when you already have the lump sum today.
A practical split many savers use: RD for goals under 3 years, SIP for goals beyond 5 years, and either for the years in between depending on how much certainty you need.
Rules and fine print worth knowing
Before opening an RD, know these details:
- Missing an instalment attracts a small penalty (typically ₹1–2 per ₹100 per month at banks; post office RDs charge ₹1 per ₹100) and repeated defaults can close the account.
- Premature closure is allowed with a rate cut of usually 0.5–1%, same as FDs. Post office RDs (5-year tenure) allow closure after 3 years.
- RD interest is fully taxable at your slab rate, and the same TDS rules as FDs apply — 10% TDS if interest at that bank crosses ₹50,000 a year (₹1 lakh for senior citizens).
- Senior citizens get the same 0.25–0.50% extra rate on RDs as on FDs at most banks.
Frequently asked questions
›How is RD maturity calculated?
Each monthly instalment earns interest, compounded quarterly, for the months it remains deposited. The maturity value is the sum of all instalments grown this way. This calculator uses that exact method, so results match bank quotations.
›Is RD interest taxable?
Yes — RD interest is added to your income and taxed at your slab rate, and banks deduct 10% TDS once your total interest there crosses ₹50,000 in a year (₹1 lakh for senior citizens). Form 15G/15H avoids TDS if your income is below the taxable limit.
›Which is better — RD or SIP?
For goals within about 3 years, an RD's guaranteed return usually makes more sense. For 5+ year goals, equity SIPs have historically earned more, at the cost of short-term ups and downs. They solve different problems — many people run both.
›What happens if I miss an RD instalment?
Banks charge a small monthly penalty on the delayed instalment, and most allow you to catch up. Several consecutive defaults (often 4–6) can lead the bank to convert or close the RD. If your income is irregular, a flexible/iWish-style RD or simply a savings-account sweep may suit you better.
›Can I withdraw an RD before maturity?
Yes, but the bank pays interest at the rate applicable to the period the money actually stayed, minus a premature withdrawal penalty of typically 0.5–1%. Partial withdrawals are generally not allowed on bank RDs — you close the whole account.