Table of Contents

  1. What is a Recurring Deposit?
  2. How RD Works
  3. RD Interest Rates 2025
  4. RD Maturity Formula
  5. RD vs SIP
  6. Post Office RD
  7. Taxation
  8. FAQs

A Recurring Deposit (RD) is a savings scheme offered by banks and post offices that lets you deposit a fixed amount every month for a chosen tenure. At maturity, you receive the total amount deposited plus compounded interest — guaranteed, with zero market risk.

💡 RDs are perfect for building a specific corpus for a near-term goal — like a vacation, laptop, or down payment — through disciplined monthly saving with guaranteed returns.

What is a Recurring Deposit?

An RD is essentially a monthly savings commitment to a bank. You agree to deposit a fixed amount (minimum ₹100) every month for a period ranging from 6 months to 10 years. The bank pays you compound interest on the accumulated balance, typically compounded quarterly. At maturity, you receive principal plus all accumulated interest.

Unlike a SIP in mutual funds, an RD carries zero market risk. Your maturity amount is known at account opening — making it ideal for goal-based saving where certainty matters more than maximizing returns.

How an RD Works

  1. Open an RD account with your bank — takes 5 minutes online
  2. Choose monthly deposit amount (e.g., ₹5,000) and tenure (e.g., 3 years)
  3. Set up auto-debit from your savings account on a fixed date
  4. Every month ₹5,000 is debited and added to your RD account
  5. Interest accrues monthly (compounded quarterly)
  6. At end of 3 years, receive ₹5,000 × 36 months + interest = maturity amount

RD Interest Rates 2025

Bank 1 Year 2 Years 3 Years 5 Years
SBI 6.80% 7.00% 6.75% 6.50%
HDFC Bank 6.60% 7.00% 7.00% 7.00%
ICICI Bank 6.70% 7.00% 7.00% 7.00%
Axis Bank 6.70% 7.10% 7.10% 7.00%
Post Office RD 6.70% p.a. (compounded quarterly) — fixed 5-year tenure
Small Finance Banks 7.50% 8.00% 8.00% 8.00%

Senior citizens typically receive +0.25–0.50% on RD rates. Verify current rates on bank websites.

RD Maturity Formula

Indian banks calculate RD maturity using quarterly compounding:

M = R × [(1+i)ⁿ – 1] / [1 – (1+i)^(–1/3)]

Where: R = monthly deposit, i = quarterly interest rate (annual rate ÷ 4), n = number of quarters

Example: ₹5,000/month for 3 years at 6.8% = Maturity of approximately ₹1,99,418 (total deposited: ₹1,80,000, interest earned: ₹19,418)

RD vs SIP — Which is Better?

Feature Recurring Deposit SIP (Equity MF)
Returns 6–8% (guaranteed) 10–15% (market-linked)
Risk Zero — DICGC insured up to ₹5L Market risk — can lose short-term
Tax on Gains Full slab rate (interest income) 10% LTCG for equity (>1yr, >₹1L)
Minimum Monthly ₹100 ₹500
Premature Exit Allowed with penalty (0.5–1%) Allowed anytime (exit load may apply)
Loan Against Yes (up to 80–90% of balance) Yes (via securities lending)
Best For 1–3 year goals, beginners, capital safety 5+ year goals, wealth creation

Post Office Recurring Deposit (PORD)

The Post Office RD is backed by the Government of India — making it one of the safest investments available at any deposit amount (no ₹5L cap like bank DICGC insurance).

  • Rate: 6.70% p.a. compounded quarterly (Q1 FY2026)
  • Minimum: ₹100/month
  • Tenure: 5 years (extendable in 5-year blocks)
  • Premature closure: Allowed after 3 years with penalty
  • Loan facility: Available after 12 completed installments
  • Where to open: Any India Post branch or online via India Post Payments Bank

RD Taxation

Interest earned on RDs is fully taxable under “income from other sources” at your income slab rate — same as FD interest:

  • TDS at 10% deducted when annual interest income exceeds ₹40,000 (₹50,000 for senior citizens)
  • Submit Form 15G/15H to avoid TDS if total income is below taxable threshold
  • Interest must be declared every year on an accrual basis (not just at maturity)

Calculate your exact RD maturity amount

Try Free RD Calculator →

FAQs

Can I open an RD online?

Yes. All major banks allow RD opening via net banking, mobile app, or their website in 2–3 minutes. Post Office RDs can be opened online through India Post Payments Bank app or any post office branch.

What happens if I miss an RD installment?

Most banks charge a small penalty (₹1–2 per ₹100 per month) for missed installments. After a certain number of consecutive defaults (typically 6 months), the bank may convert the RD to a single FD or close the account.

Is RD better than SIP for a 1-year goal?

For a 1-year goal, RD is clearly better. Equity SIPs should not be used for goals under 3 years due to market volatility risk. RD gives guaranteed returns for short-term goals.

Can I open multiple RDs simultaneously?

Yes. You can open as many RDs as you want, across different banks, with different amounts and tenures. This helps align each RD to a specific goal with a matching timeline.