What is a recurring deposit (RD) account?
A recurring deposit (RD) is a bank or post office savings product where you commit to deposit a fixed amount every month for a chosen tenure. Unlike a fixed deposit (FD), where you invest a lump sum upfront, an RD lets you build savings gradually — useful when you have a steady monthly surplus but not a large amount sitting idle.
Post office RDs currently offer around 6.7% for a 5-year tenure, while bank RD rates vary by institution and tenure — typically between 6% and 7.5% for retail customers. Each monthly instalment earns interest for however long it remains on deposit until maturity, with Indian banks compounding quarterly on each instalment individually.
If you already have a lump sum to invest rather than a monthly stream, a fixed deposit may suit you better — compare maturity values with the FD calculator using the same rate and tenure.
RD maturity examples
| Monthly deposit | Tenure | Rate | Maturity |
|---|---|---|---|
| ₹5,000 | 12 months | 7% | ₹62,311 |
| ₹5,000 | 60 months | 7% | ₹3,59,664 |
| ₹10,000 | 60 months | 7% | ₹7,19,328 |
How a Recurring Deposit (RD) works
A Recurring Deposit lets you build up savings through disciplined fixed monthly installments, instead of investing a lump sum all at once like a Fixed Deposit (FD). Each installment is locked in at the interest rate applicable when you open the account, and earns interest for however long it remains on deposit until the RD matures.
Quarterly compounding on each monthly installment
Indian banks typically compound RD interest quarterly, applied individually to each monthly installment based on how long that specific installment has been deposited. In practice, this means your first deposit earns the most interest (since it's on deposit for the full tenure), while your last deposit earns very little (since it's only on deposit for a short time before maturity). The maturity value is the sum of every installment's own compounded value.
Premature closure and missed installments
Closing an RD before its tenure ends, or missing a monthly installment, usually attracts a penalty — either a fee or a reduced effective interest rate for that period. This is entirely bank-specific, so check your bank's terms before committing to a tenure you might not be able to sustain.
Tax treatment
RD interest is taxed the same way as FD interest — at your slab rate, with TDS deducted by the bank once your interest crosses the annual threshold. See the FD calculator for the full TDS mechanics and threshold details, which apply identically here.
Who an RD suits best
An RD works well if you have a predictable monthly surplus but don't already have a lump sum sitting around to put into an FD — think of it as a forced-savings habit with a guaranteed return, rather than an investment for growth. It's commonly used for short, specific goals: a down payment a year or two out, an annual insurance premium, or simply building an emergency fund in fixed, disciplined steps rather than letting the balance sit idle in a savings account earning a much lower rate.
Worked example
Say you deposit ₹5,000 every month for 12 months at 7% per annum. You'll have put in ₹60,000 of your own money by the end, but because each installment sits for a different length of time (the first deposit compounds for the full year, the last for barely a month) and interest compounds quarterly on each, the maturity value works out to ₹62,311 — about ₹2,311 in interest for the year.
Opening and closing an RD
Most banks let you open an RD online in minutes, with tenures typically ranging from 6 months to 10 years. Some banks also offer a "flexi RD" variant that allows you to deposit more than the fixed installment in a given month — but the interest calculation on that extra amount often follows different rules, so check with your bank if you're considering one. At maturity, the proceeds are usually credited automatically to your linked savings account, though you can also choose to reinvest the maturity amount into a fresh FD or RD.