What Is a Recurring Deposit (RD)? Your Complete Guide to Monthly Savings

A Recurring Deposit bridges the gap between a regular savings account and a fixed deposit. It combines the discipline of regular monthly saving with the higher interest returns of an FD — making it a popular choice for individuals who want a structured, risk-free way to accumulate money toward a specific goal over 6 months to 10 years.

How Does an RD Work?

You commit to depositing a fixed amount every month into your RD account for a chosen tenure. The bank applies a fixed interest rate (compounded quarterly) on each instalment from the date of deposit to maturity. At the end of the tenure, you receive the total of all instalments plus the accumulated interest.

For example: ₹5,000/month for 2 years at 7% p.a. returns approximately ₹1,29,200 at maturity — on ₹1,20,000 contributed. The ₹9,200 interest may seem modest, but for a guaranteed, zero-risk instrument, it serves its purpose well. Calculate your exact maturity amount with our Recurring Deposit Calculator.

RD Interest Rates and Compounding

RD interest rates are typically similar to FD rates for the equivalent tenure at the same bank. Interest is compounded quarterly, even though instalments are monthly. Most banks currently offer 6.5–7.5% p.a. for RDs of 1–3 year tenures, with higher rates for senior citizens.

RD Taxation

RD interest is treated as income and taxed at your applicable income tax slab rate — identical to FD taxation. TDS at 10% applies when annual interest exceeds ₹40,000 (₹50,000 for seniors). Submit Form 15G/15H if your total income is below the taxable limit to avoid TDS deduction.

RD vs. SIP: Which Is Better for Monthly Investing?

Feature	Recurring Deposit	Equity SIP
Returns	6.5–7.5% (guaranteed)	10–14% (market-linked, variable)
Risk	Zero (principal guaranteed)	Market risk
Taxation	Slab rate on interest	20% STCG / 12.5% LTCG
Liquidity	Moderate (penalty for premature closure)	High (redeem anytime after 3-yr for ELSS)
Minimum Amount	₹100–₹500	₹500
Best For	Short-term goals (<3 years), guaranteed corpus	Long-term wealth building (5+ years)

The choice is simple: for goals within 3 years where capital protection is essential, RD wins. For wealth building beyond 5 years, equity SIP typically delivers far superior outcomes net of tax and inflation.

Who Should Use an RD?

Individuals saving for a specific short-term goal (vacation, gadget, down payment within 1–3 years)
Risk-averse savers who cannot tolerate any possibility of losing principal
Those building a habit of monthly saving before graduating to mutual fund SIPs
Retirees seeking predictable, guaranteed returns on a portion of their corpus

Premature Closure

Most banks allow premature RD closure with a 1% interest rate penalty. Some banks do not permit partial withdrawal — you must close the entire account. Ensure you will not need the funds before the maturity date.

Related Calculators

Disclaimer: Interest rates shown are indicative. Verify current rates with your bank. This content is for educational purposes only.