Recurring Deposit Maturity Summary
What is a Recurring Deposit (RD)?
A Recurring Deposit (RD) is a savings product offered by banks and post offices in India where you deposit a fixed amount every month for a predetermined tenure. At the end of the tenure, you receive the total principal plus accumulated interest in a lump sum. Unlike an FD where you deposit a lump sum upfront, an RD lets you build savings gradually — making it ideal for salaried individuals who want to invest a portion of their monthly income in a safe, guaranteed-return product.
How RD Interest is Calculated in India
Indian banks calculate RD interest using quarterly compounding applied to each monthly instalment. The standard formula is: M = R × [(1 + i)^n − 1] / (1 − (1 + i)^(−1/3)), where M is the maturity value, R is the monthly deposit amount, i is the quarterly interest rate (annual rate ÷ 4 ÷ 100), and n is the total number of quarters. This formula treats each monthly instalment as a separate deposit that earns interest from its deposit date to maturity.
RD Maturity Example — ₹5,000 per Month at 7% for 2 Years
Monthly deposit: ₹5,000. Annual rate: 7%. Tenure: 24 months. Total deposited: ₹1,20,000. Using quarterly compounding, maturity amount = approximately ₹1,29,200. Interest earned = approximately ₹9,200. Effective yield = 7.19% (slightly higher than 7% due to quarterly compounding). Compare this to keeping ₹5,000 per month in a savings account at 3.5% — you would earn only about ₹4,400 in interest over the same period. RD earns more than double.
Current RD Rates in India (2025)
Major Indian banks offer the following RD rates for general citizens on 1–2 year tenures: SBI at 6.50%–7.00%, HDFC Bank at 7.00%–7.25%, ICICI Bank at 6.70%–7.20%, and Axis Bank at 7.00%–7.25%. Senior citizens receive an additional 0.25%–0.75% at most banks. Small finance banks like AU Small Finance Bank offer higher rates — sometimes above 8% — for higher balances. Post Office RD offers 6.7% p.a. with full government backing.
Post Office RD — Government Backed Safety
The Post Office Recurring Deposit (PO RD) is one of the most popular savings products in India, especially in smaller towns and rural areas. It currently offers 6.7% p.a. compounded quarterly, has a fixed 5-year tenure, and requires a minimum monthly deposit of just ₹100 — with no upper limit. It is fully backed by the Government of India, making it the safest RD option available. Premature closure is allowed after 3 years with a 1% interest penalty.
RD vs FD vs SIP — Which Should You Choose?
Choose an RD if you want to invest a fixed monthly amount with guaranteed returns and no market risk — best for goals within 1–5 years like a vacation, car down payment, or building an emergency fund. Choose an FD if you have a lump sum to invest with guaranteed returns. Choose a SIP in equity mutual funds if your goal is 7+ years away and you can tolerate short-term market volatility — historically, equity SIPs have delivered 10–14% CAGR, significantly outperforming RDs over the long term. For most salaried Indians, running both an RD (for safety and short-term goals) and a SIP (for long-term wealth) simultaneously is the ideal combination.
Tax on RD Interest
RD interest is taxable as "Income from Other Sources" at your income tax slab rate — the same as FD interest. Banks deduct TDS at 10% if total interest across all deposits at that bank exceeds ₹40,000 per year (₹50,000 for senior citizens). The Post Office does not deduct TDS on RD interest, but it is still taxable and must be declared in your ITR. Submit Form 15G (or 15H for seniors) to avoid TDS deduction if your income is below the exemption limit.
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Frequently Asked Questions
RD interest uses quarterly compounding on each monthly instalment: M = R × [(1 + i)^n − 1] / (1 − (1 + i)^(−1/3)), where R is monthly deposit, i is quarterly rate (annual ÷ 400), and n is total quarters. Each instalment earns interest from its deposit date to maturity — this is the standard used by all major Indian banks and the Post Office.
Total deposited = ₹1,20,000. Maturity amount ≈ ₹1,29,200. Interest earned ≈ ₹9,200. Effective yield = 7.19% due to quarterly compounding. This is significantly more than a savings account at 3.5% would earn over the same period.
The Post Office RD currently offers 6.7% p.a. compounded quarterly, with a fixed 5-year tenure and minimum monthly deposit of ₹100. It is government-backed — the safest RD in India. Premature closure allowed after 3 years with a 1% penalty.
Yes. RD interest is taxable at your income slab rate as "Income from Other Sources." Banks deduct TDS at 10% if total annual interest exceeds ₹40,000 (₹50,000 for seniors). Post Office does not deduct TDS, but interest is still taxable and must be declared in your ITR.
Both require fixed monthly investments. RDs give guaranteed returns (6%–7.5%) with zero market risk — ideal for goals within 1–5 years. SIPs in equity mutual funds offer historically higher returns (10%–14% CAGR) but with market risk — ideal for 7+ year goals. Running both simultaneously is the most balanced approach for most salaried Indians.