Recurring Deposit (RD)

A Recurring Deposit (RD) is a bank savings scheme you fund with a fixed amount every month for a set tenure. It works like a fixed deposit that is built up gradually: rather than placing one lump sum, you commit to monthly instalments, and the bank pays interest on the accumulating balance — typically compounded quarterly — returning the total at maturity. Because the rate is locked at the start and deposits are regular, an RD offers guaranteed, low-risk returns.

How it differs from an FD and a SIP

The three are often confused, but they suit different situations:

• FD: one lump sum invested for a fixed tenure.
• RD: the same safety, but funded through monthly deposits — ideal if you lack a large lump sum.
• SIP: monthly investment in market-linked mutual funds, with the potential for higher returns but no guaranteed outcome.

How the interest works

Because each monthly deposit is made at a different time, the maths is not a single lump-sum calculation. Every instalment sets off earning interest from the day it is deposited and keeps compounding quarterly until maturity. A period of up to 10 years is common, with tenures typically ranging from 6 months upward.

Returns are greater than a savings account but lower than equities — the trade-off being zero market risk. The guaranteed nature of an RD makes it a natural home for short- to medium-term goals such as a holiday fund, a vehicle purchase or an emergency-cushion top-up.

Practical details to keep in mind

• Missed instalments can trigger a penalty, so an RD rewards consistency over flexibility.
• Many banks let you pre-close an RD, but you may lose some interest or pay a small charge.
• Interest is taxable in your income-tax slab; as with any deposit income, factor that into your expected net return.
• An RD's biggest strength is forcing disciplined, regular saving — the very habit that makes compounding work even at modest rates.

A quick example

Deposit ₹5,000 a month for 3 years (36 months) at 6.5% compounded quarterly. You deposit ₹1,80,000 in total, and the maturity value comes to roughly ₹1,98,600 — meaning about ₹18,600 in interest earned purely from disciplined monthly saving plus compounding.

Project your maturity with the RD Calculator, and compare it against a market-linked approach with the SIP Calculator.