What is a Recurring Deposit (RD)?
A Recurring Deposit (RD) is a unique term-deposit offered by Indian banks and post offices. Unlike a Fixed Deposit (FD) where you deposit a lump sum once, an RD allows you to deposit a fixed amount every month over a specified tenure. It is an excellent tool for salaried individuals to build savings discipline while earning guaranteed returns.
How RD Interest is Calculated
Calculating RD interest is slightly more complex than FD interest because each monthly deposit earns interest for a different duration. For instance, in a 12-month RD, the first month's deposit earns interest for 12 months, the second for 11 months, and the last deposit earns interest for just 1 month.
The mathematical formula used by banks for RD maturity is:
M = R x [(1 + r/n)^(nt) - 1] / [1 - (1 + r/n)^(-1/3)]
Our RD Calculator simplifies this complex calculation. If you deposit ₹5,000 every month for 5 years (60 months) at an interest rate of 7% p.a., your total investment is ₹3,00,000, and your maturity amount will be approximately ₹3,59,524.
FD vs RD: Which is Better?
Neither is objectively "better"; it depends on your cash flow. If you have a lump sum amount (like a bonus), an FD is ideal because the entire amount earns interest from day one. If you want to save from your monthly salary, an RD is the perfect choice.
Taxation on RD
Similar to FDs, the interest earned on an RD is fully taxable under "Income from Other Sources." Banks will deduct a 10% TDS if your total interest income across all deposits exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). If your total income is below the exemption limit, you must submit Form 15G or Form 15H to the bank.