A Recurring Deposit (RD) is a savings scheme offered by banks and post offices where you deposit a fixed amount every month for a chosen tenure. At maturity, you receive the total deposits plus interest. Banks compound RD interest quarterly (as per RBI guidelines), while Post Office RDs compound quarterly too. RD is ideal for people who want to save a fixed amount monthly without locking in a large lumpsum.
Worked Example:
Monthly RD = ₹5,000 | Rate = 7% p.a. | Tenure = 24 months
Total deposited = ₹5,000 × 24 = ₹1,20,000
Interest earned ≈ ₹9,099 (quarterly compounding)
Maturity value = ₹1,29,099
What is the difference between RD and SIP?▾
Both involve monthly fixed investments, but RD is a bank product with guaranteed fixed returns (7%), while SIP invests in mutual funds with market-linked variable returns (historically 10-14% CAGR for equity funds). RD is better for short-term goals (1-3 years) where capital protection matters. SIP is better for long-term wealth creation (5+ years).
Can I withdraw RD before maturity?▾
Yes, premature closure of RD is allowed with a penalty of typically 1-2% below the contracted rate. If you deposited at 7%, premature closure might give you 5.5-6%. Some banks allow partial withdrawal with penalties. Post Office RDs can be closed after 3 years without penalty.
Is RD interest taxable?▾
Yes, RD interest is fully taxable as per your income tax slab. Banks deduct TDS of 10% if annual interest from all RDs at that bank exceeds ₹50,000 (₹1,00,000 for senior citizens), per the FY 2025-26 threshold revision. You must declare all RD interest in your ITR even if no TDS was deducted.
RD vs FD, which is better?▾
FD gives slightly higher interest rates than RD (0.25-0.5% more) because the entire principal is deployed from day 1. RD is better if you don't have a lumpsum and want to save monthly. For the same maturity period: ₹1,00,000 FD at 7% for 2 years earns more than ₹4,167/month RD at 7% for 2 years because in RD, early installments earn less.