What is RD? (Recurring Deposit)
A **Recurring Deposit (RD)** helps you build savings systematically by depositing a fixed amount each month. You earn assured interest and receive a lump-sum at maturity. It’s ideal for disciplined savers who want predictable, low-risk growth without locking a lump-sum like an FD.
RD in Plain English
With an RD, you choose a monthly deposit amount and a tenure. Each monthly deposit is treated as a separate installment that earns interest (usually compounded quarterly) until maturity. Because deposits happen every month rather than at once, your final maturity amount is lower than an equivalent FD with a lump-sum invested for the full period—but RDs shine at promoting consistent saving habits, budgeting, and goal-based planning.
Benefits of RDs
- Guaranteed returns with virtually no market risk.
- Disciplined savings: a fixed amount each month builds a strong habit.
- Flexible tenures: typically from 6 months up to 10 years.
- Suitable for short/medium-term goals (fees, gadgets, trips, insurance premium buckets).
- Can open multiple RDs for different goals—easy tracking and flexibility.
- Senior citizens may get slightly higher rates at many banks.
Who Should Consider an RD?
If you prefer **predictable outcomes** and want to save steadily without managing market volatility, RDs are a strong fit. They work especially well for students, salaried individuals, freelancers with monthly surplus, and families planning for near-term goals within 1–5 years.
How an RD Works
Choose Monthly Deposit
Pick a comfortable monthly amount you’ll deposit into the RD for the entire tenure.
Select Tenure
Choose the RD duration (6 months to 10 years). Longer tenures generally earn more interest.
Interest is Compounded
Banks typically compound RD interest quarterly; your periodic deposits grow over time.
Guaranteed Maturity Value
At maturity, you receive the total deposits plus accumulated interest—predictable and safe.
Types of Recurring Deposits
Regular RD
Standard monthly deposit plan with quarterly compounding; ideal for systematic savings.
Senior Citizen RD
Offered by many banks with an additional 0.25%–0.75% interest (varies by bank/tenure).
Tax-Saver Style RD (Bank-specific)
Some banks market RDs with tax-related features. Always verify lock-in and tax treatment.
NRE/NRO RD
For NRIs. Check eligibility, repatriation, and interest taxability based on your residency.
Flexi/Variable RD
Lets you vary monthly installments within pre-set limits if your cash flows are uneven.
Corporate/Bulk RD
Offered to businesses with negotiated rates/terms; great for treasury-style cash planning.
RD Interest Calculation Example
Suppose you deposit ₹5,000 every month into an RD for 24 months at an annual interest rate of 7.0%, compounded quarterly. Each monthly installment earns interest for the remaining period until maturity. The earlier installments earn interest for longer, while the later ones earn for fewer quarters.
While banks use precise formulas, a simplified approach is to compute the maturity value by adding the future value of each monthly deposit under quarterly compounding. For exact values tailored to your bank’s compounding rules, use our RD Calculator.
RD vs FD vs SIP: When to Choose What?
Choose RD when…
- You prefer depositing smaller sums every month.
- Your goal is 6–48 months away and you want predictable returns.
- You want to build the savings habit with no market risk.
Choose FD when…
- You already have a lump-sum to invest at once.
- You want guaranteed outcomes with fixed tenure and rate.
- You’re parking funds for 1–5 years without market exposure.
Choose SIP when…
- You can tolerate market ups & downs for potentially higher long-term returns.
- Your goals are 5+ years away (education, retirement, wealth creation).
- You want equity or debt fund exposure with rupee-cost averaging.
Tips & Common Mistakes
Automate Monthly Deposits
Set standing instructions so you never miss a month. Missed payments can reduce your interest or attract penalties.
Align RD to Short-Term Goals
Match the RD tenure with goals like gadgets, school fees, vacations, or insurance premiums for disciplined savings.
Compare RD Rates
Rates vary by bank and tenure. A small difference in rate can change your final maturity value noticeably.
Use Multiple RDs
Instead of one big RD, open smaller goal-based RDs. It gives flexibility if you need to break only one.
Prefer Quarterly Compounding
Most banks use quarterly compounding; verify this in the product document for accurate planning.
Common Mistakes to Avoid
- Missing monthly installments—can reduce returns or incur penalties.
- Choosing a tenure that doesn’t match your goal; leads to premature closure.
- Ignoring post-tax returns—interest on RDs is taxable as per your slab.
- Not comparing bank rates and compounding rules.
- Breaking RD early without understanding penalty impact.
Smart RD Strategies
- Open multiple goal-based RDs with staggered maturities.
- Step-up plan: increase RD amount annually as your income grows.
- Coordinate RD maturity with premium due dates or school fee cycles.
- Use RD as a “parking lot” before moving funds into long-term investments.
Important Notes
- Taxation: RD interest is fully taxable as per your slab. TDS may apply above thresholds.
- Premature Closure: Allowed by most banks with penalty; confirm terms before opening.
- Missed Installments: Penalties or reduced interest may apply; set auto-debit to avoid.
- Senior Citizen Rates: Many banks offer an additional spread; verify current rate slabs.
- Bank Variations: Rate, compounding conventions, and penalties differ—always read the product document.
Note: Rates and rules are subject to change. Always verify on the official bank website before investing.