A recurring deposit (RD) lets you save a fixed amount every month with a bank or the post office and earn a fixed rate of interest. It builds the saving habit like a SIP, but with a guaranteed return like an FD. It is a good fit for short-term goals such as a vacation, a gadget or an emergency fund.
How to use the RD calculator
- Enter your monthly deposit.
- Enter the yearly interest rate.
- Choose the tenure in years.
You will see the total amount deposited, the interest earned and the maturity amount. The year-wise breakdown shows how the value builds up.
How RD interest is calculated
Banks and the post office compound RD interest quarterly. Every monthly instalment earns interest for the time it stays in the account: the first instalment for the full tenure, the last one for just one month. The maturity value is the sum of all instalments with their interest:
Maturity = Σ R × (1 + r ÷ 400)^(m ÷ 3)- R = monthly deposit
- r = yearly interest rate in %
- m = months that instalment stays deposited (from the full tenure down to 1)
Example
You deposit ₹5,000 every month for 5 years at 7%.
- Total deposited = ₹5,000 × 60 = ₹3,00,000
- Maturity amount = ₹3,59,664
- Interest earned = ₹59,664
A smaller RD of ₹2,000 a month for 5 years at the same rate grows to ₹1,43,866.
RD vs FD
With ₹3,00,000 already in hand, an FD at 7% for 5 years (quarterly compounding) grows to about ₹4,24,433. An RD earns less interest on the same total because most of the money goes in later. RDs are for people who save from monthly income, while FDs suit a lump sum you already have. See the FD calculator.
Things to know
- RD interest is taxable at your slab rate, and banks can deduct TDS on it.
- Missing an instalment usually attracts a small penalty. Several missed instalments can lead to the account being closed.
- Post office RD has a fixed 5-year tenure and a rate set by the government every quarter.
- Premature closure is usually allowed with a lower rate of interest.
FAQ
How is RD interest calculated?
Interest is compounded every quarter. Each monthly deposit earns interest from the month it is made until maturity, so earlier deposits earn more than later ones.
Is RD interest taxable?
Yes. It is taxed as income at your slab rate, and TDS may be deducted if interest crosses the yearly threshold.
What happens if I miss an RD payment?
Most banks charge a small penalty for a late instalment. If you miss several in a row, the bank may close the RD and return your money with interest.
RD or SIP: which is better?
An RD gives a fixed, guaranteed return, which suits short-term goals. A SIP in equity mutual funds can give higher returns over long periods but with market risk. Compare with the SIP calculator.