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Recurring Deposit (RD)

A Recurring Deposit (RD) is a savings option offered by banks and post offices where you deposit a fixed amount every month for a chosen tenure. It is designed for disciplined saving with predictable returns.

RD earns interest on monthly deposits, typically compounded quarterly, and pays the maturity amount at the end of the tenure.

How a recurring deposit works

You choose a monthly deposit amount and a tenure. The bank calculates interest on each installment from the date it is deposited until maturity, then pays you the total at the end.

Tenure and deposit amount

Tenures usually range from 6 months to 10 years, depending on the bank. You can start with a small monthly amount and increase it by opening a new RD if needed.

Interest rate

RD interest rates are usually fixed when you open the account. Rates can differ between banks, and senior citizens often get higher rates.

Why investors choose RD

  • Safe and predictable: RDs offer stable returns with low risk, similar to fixed deposits.
  • Disciplined savings: Monthly deposits build a savings habit without large lump-sum investments.
  • Flexible amounts: Start small and save consistently, making it suitable for beginners.
  • Goal planning: Useful for short- to medium-term goals like travel, education, or a down payment as part of goal planning.

RD vs FD: how they are different

Both RD and FD are low-risk bank deposits, but they fit different saving styles and cash flow needs.

  • Contribution style: RD takes fixed monthly deposits, while FD is a one-time lump sum.
  • Cash flow impact: RD spreads savings over time; FD locks a larger amount upfront.
  • Interest calculation: FD earns interest on the full amount from day one; RD interest builds on each installment.
  • Use case: RD suits regular savers, while FD suits those with surplus cash to park.

Tax rules for RD

  • Interest is taxable: RD interest is added to your income and taxed as per your income tax slab.
  • TDS may apply: Banks can deduct TDS if interest crosses the threshold in a financial year.
  • No 80C benefit: Regular RDs do not qualify for tax deduction; only specific 5-year tax-saving RDs do.

Fixed monthly savings

You commit to a monthly deposit, making RD ideal for goal-based savings.

Low risk returns

RDs are offered by regulated banks and post offices, providing stability.

Compounded interest

Each installment earns interest until maturity, building a steady corpus.

Common RD mistakes to avoid

  • Missing installments: Delays can attract penalties and reduce returns.
  • Ignoring inflation: RD returns may not beat inflation, so balance with growth assets.
  • Breaking early: Premature closure can reduce interest earned.
  • Choosing the wrong tenure: Match the RD maturity with your goal timeline.

Who should consider a recurring deposit

  • New investors who want safe, disciplined savings.
  • Families planning for short- to medium-term expenses.
  • Savers who prefer predictable returns without market risk.
  • Anyone building a goal-based savings habit.