What is a recurring deposit?
A recurring deposit (RD) lets you save a fixed amount every month for a chosen tenure and receive the accumulated amount with interest at maturity. It is offered by all banks and the post office, carries a fixed rate for the whole term, and is ideal for disciplined short- to medium-term saving — school fees, a vehicle down payment or an annual insurance premium.
How RD interest is calculated
Interest on RDs is compounded quarterly, like fixed deposits. Each monthly instalment earns interest for the number of months remaining until maturity. The maturity value is the sum of all instalments grown at the quarterly-compounded rate: M = Σ P × (1 + r ÷ 4)4 × (n − k + 1) ÷ 12 for instalments k = 1 to n. This calculator simulates each month exactly rather than using an approximation.
Worked example
₹5,000 per month for 5 years at 6.7% (the current post office RD rate): total deposited ₹3,00,000, maturity about ₹3,54,900, interest earned ≈ ₹54,900. At a bank rate of 7.25% the maturity would be about ₹3,60,000. Doubling the monthly deposit doubles the maturity amount exactly, since every instalment grows the same way.
Post office vs bank RD
- Post office RD: fixed 5-year term, rate revised quarterly by the Ministry of Finance (currently 6.7%), minimum ₹100 per month, loan up to 50% after 12 instalments.
- Bank RD: tenures from 6 months to 10 years, rates close to the bank's FD rates, senior citizen premium usually available.
- Both charge a small penalty for missed instalments and allow premature closure after a lock-in.
Tax treatment
RD interest is fully taxable at your slab rate under Income from Other Sources. Banks deduct TDS under Section 194A once total interest from the bank crosses the annual threshold (₹50,000; ₹1 lakh for senior citizens from FY 2025-26). Post office RDs are not subject to TDS but the interest is still taxable. RDs do not qualify for Section 80C.
When to prefer an RD over a SIP
An RD guarantees the maturity amount and suits goals within 1–3 years. For goals beyond 5 years, an equity SIP has historically delivered higher returns but with volatility.
Frequently Asked Questions
How is RD interest compounded?
Quarterly. Each instalment earns compound interest from the month it is deposited until maturity.
What is the current post office RD rate?
6.7% per annum for the 5-year scheme (revised quarterly by the government). Update the rate field if it changes.
Is TDS deducted on RD interest?
Banks deduct 10% TDS if total interest exceeds the annual threshold. Post office RD has no TDS but interest remains taxable.
What if I miss an RD instalment?
A small default fee is charged (post office: ₹1 per ₹100 per month). Repeated defaults can discontinue the account.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.