What is a recurring deposit?
A recurring deposit turns saving into a standing instruction: you deposit a fixed amount every month for a fixed tenure, the bank pays a fixed interest rate, and you collect a guaranteed maturity amount at the end. It is the disciplined saver’s instrument — an FD you build one salary at a time.
RDs are offered by every bank and by India Post, for tenures from 6 months to 10 years. The rate is locked for the full tenure on the day you open it, which makes an RD ideal for goals with a date on them — school fees, insurance premiums, a Diwali fund, next year’s trip.
How RD maturity is calculated
Banks and India Post compound RD interest quarterly. Each monthly instalment earns quarterly-compounded interest for exactly the time it stays deposited — your first instalment compounds for the whole tenure, the last one for barely a month. Summing all of them gives the standard formula this calculator uses (the same one on your bank’s and India Post’s own sites):
M = R × [(1 + i)ⁿ − 1] / (1 − (1 + i)^(−1/3))
- R = your monthly deposit
- i = quarterly interest rate = annual rate ÷ 4 ÷ 100
- n = tenure in quarters (months ÷ 3)
Worked example: ₹5,000 every month for 1 year at 6.5% means you deposit ₹60,000 in total and receive about ₹62,143 at maturity — ₹2,143 of interest. It looks modest for a year of saving because each instalment only earns for the months it was actually in the bank.
RD vs FD: why the same rate pays less
Run ₹5,000 a month for 5 years at 6.5% and you get about ₹3.55 lakh on ₹3 lakh deposited. Had you parked the full ₹3 lakh up front in an FD at the same rate, it would mature at about ₹4.14 lakh. The FD wins only because all the money was invested from day one — but that is exactly the point of an RD: you don’t have the lumpsum yet. The honest comparison is an RD versus money drifting through a savings account, and there the RD wins comfortably.
RD or SIP?
An RD and a SIP are the same habit pointed at different engines. The RD’s return is guaranteed and fixed; a SIP’s is market-linked — historically higher over long periods, but never promised and sometimes negative in between. A useful rule of thumb: money you will definitely need on a date (and cannot afford to see dip) suits an RD; long-horizon wealth-building suits a SIP. Many salaried savers run both side by side.
The fine print worth knowing
Missed instalments attract a small penalty (India Post charges about ₹1 per ₹100 per month; banks vary) and repeated defaults can freeze the account, so pick a deposit you can sustain. Premature closure is allowed after a lock-in with a rate cut, like an FD. Tax: RD interest is fully taxable at your slab rate and counts toward the bank’s TDS threshold (submit 15G/15H if your income is below the taxable limit). Figures here are pre-tax, and your bank’s paise-level rounding may differ marginally from the formula.