What is a Recurring Deposit (RD)?
A Recurring Deposit is a bank savings product where you deposit a fixed amount every month for a chosen tenure and earn a fixed rate of interest. At the end of the tenure, you receive the total deposited amount along with the accumulated interest. RDs combine the discipline of regular saving with the safety of a bank deposit.
The maturity value is calculated by simulating each month's deposit and applying monthly compounding. Since each instalment earns interest for a different number of months, the total interest is the sum of compound interest on each individual deposit over its remaining tenure. Our calculator applies monthly compounding on the running balance to arrive at an accurate maturity figure.
RDs are suitable for individuals with a steady monthly income who want a guaranteed, risk-free savings plan. Interest earned is taxable, and TDS may apply if the interest exceeds ₹40,000 per year (₹50,000 for senior citizens) across all deposits in the same bank.
How RD Interest Is Actually Compounded
Bank RDs and Post Office RDs in India compound interest quarterly, not monthly. Every three months, the bank calculates interest on the balance accumulated so far — including the instalments deposited during that quarter — and adds it to the principal for the next quarter. Because every monthly instalment sits in the account for a different length of time before the next quarterly credit, the maturity amount cannot be estimated with a simple "average balance" shortcut. It has to be built up instalment by instalment, quarter by quarter, which is why banks and calculators rely on a compound-growth formula rather than plain arithmetic.
Worked example: Suppose you deposit ₹5,000 every month for 5 years (60 months) in an RD at 6.5% p.a., compounded quarterly. Applying quarterly compounding to the growing balance, the maturity value works out to roughly ₹3,54,000–₹3,55,000 against a total deposit of ₹3,00,000 — that is, approximately ₹54,000–₹55,000 in interest over the 5-year tenure. This is an illustrative approximation; enter your own deposit, rate, and tenure into the calculator above for your exact maturity figure.
TDS on RD Interest
Banks are required to deduct TDS (Tax Deducted at Source) on RD interest once the total interest earned across all your deposits with that bank crosses ₹40,000 in a financial year (₹50,000 for senior citizens). TDS is typically deducted at 10% if your PAN is on record; without a PAN, a higher rate applies. This is not an extra tax — it is simply collected in advance and adjusted against your final tax liability when you file your return.
If your total income for the year is below the basic taxable limit, you can submit Form 15G (for individuals below 60) or Form 15H (for senior citizens) to the bank to avoid TDS deduction altogether. Remember that RD interest itself is always taxable as "Income from Other Sources" at your slab rate, regardless of whether TDS was deducted — Form 15G/15H only prevents the upfront deduction, not the underlying tax liability.
RD vs SIP — Which Should You Choose?
Both RD and SIP involve committing a fixed amount every month, but the underlying products work very differently. An RD is a bank deposit with a rate fixed at account opening, so your maturity value is known in advance and is not affected by market movements. A SIP (Systematic Investment Plan) invests your monthly amount in mutual funds, so returns depend on market performance — they can be higher over the long run but are never guaranteed and can also be negative in a bad year.
| Factor | Recurring Deposit (RD) | SIP in Mutual Funds |
|---|---|---|
| Returns | Fixed and guaranteed at account opening | Market-linked; varies with fund performance |
| Risk | No market risk; principal protected | Subject to market volatility, no capital guarantee |
| Typical use case | Short-term goals (1–3 years), emergency corpus | Long-term wealth creation (5+ years) |
| Tax treatment | Interest fully taxable; TDS above ₹40,000/year | Equity SIPs: LTCG taxed at 12.5% above ₹1.25L/year |
In short: pick an RD when you need certainty and cannot afford to lose principal, and consider a SIP when you have a longer time horizon and can ride out short-term market swings for potentially higher returns.
Frequently Asked Questions
How is RD maturity calculated?
RD maturity is calculated by simulating each monthly deposit separately. Each instalment earns compound interest from the month it is deposited until maturity. Since each instalment has a different number of months to grow, the maturity value is the sum of future values of all individual instalments using monthly compounding.
What is the typical RD interest rate?
Most banks offer RD interest rates similar to their FD rates for the same tenure. For general citizens, rates typically range from 6.5–7.5% per annum. Senior citizens usually get an additional 0.25–0.5%. Small finance banks may offer higher rates of 7.5–9%.
What happens if I miss an RD instalment?
Missing an instalment attracts a penalty that varies by bank (typically ₹1–2 per ₹100 per month of default). Consecutive missed payments can lead to account deactivation. Premature closure is allowed with a penalty similar to FD premature withdrawal rules.
Is RD interest taxable?
Yes. Interest earned on RDs is taxable as 'Income from Other Sources' at your applicable slab rate. TDS at 10% is deducted if your total interest (across all deposits in one bank) exceeds ₹40,000 per year (₹50,000 for senior citizens). Submit Form 15G/15H if applicable.
What is the difference between RD and SIP?
Both RD and SIP involve regular monthly investments. RD is a bank product offering guaranteed, fixed returns with capital protection — ideal for risk-averse investors. SIP invests in market-linked mutual funds, offering higher long-term return potential but with market risk. For short-term goals (1–3 years), RD is safer; for long-term wealth creation (5+ years), SIP typically outperforms.
Related Calculators
This calculator is for educational purposes only. Actual RD returns depend on the bank's prevailing rate at the time of account opening. Tax implications are not included in this calculation.