What is a Recurring Deposit (RD) and how does it work?

A Recurring Deposit (RD) is a special term deposit offered by banks which allows people with regular incomes to deposit a fixed amount every month into their RD account and earn interest at the rate applicable to Fixed Deposits. It helps investors cultivate a regular savings habit.

How is interest calculated on a Recurring Deposit (RD)?

In India, banks calculate interest on RDs using a quarterly compounding formula. The formula is M = R * [((1 + i)^n - 1) / (1 - (1 + i)^(-1/3))], where R is the monthly deposit, i is the quarterly interest rate (annual rate / 400), and n is the total number of quarters.

Is TDS applicable on RD interest?

Yes, Tax Deducted at Source (TDS) is applicable on the interest earned from Recurring Deposits if the total interest earned across all accounts in a bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). If PAN is not provided, TDS is deducted at a higher rate.

What is the minimum deposit amount and tenure for an RD?

The minimum deposit amount varies by bank but can start as low as ₹100. The tenure for a recurring deposit generally ranges from a minimum of 6 months to a maximum of 10 years.

Can I withdraw my RD balance prematurely?

Yes, most banks allow premature withdrawal of RD. However, they usually charge a small penalty (typically 0.5% to 1% lower than the applicable rate for the period the deposit remained with the bank) and do not pay the full original interest rate.

Is RD better than a Fixed Deposit (FD)?

RD and FD offer similar interest rates. However, FD is best if you have a lump sum amount to invest all at once, whereas RD is ideal for salaried individuals who want to invest a fixed amount every month from their regular savings.

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Year	Deposits Paid	Interest Credited	Accumulated Interest	Balance Amount

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Frequently Asked Questions

A Recurring Deposit (RD) is an investment structure offered by banks and post offices. Instead of depositing a single lump sum, investors deposit a fixed sum of money every month for a pre-determined tenure. The deposit earns a locked-in rate of interest identical to standard fixed deposits, compounding quarterly.

In India, RD interest is computed using quarterly compounding based on the Indian Banks Association guidelines. The mathematical formula is:

M = R × [ ( (1 + i)ⁿ - 1 ) / ( 1 - (1 + i)^-1/3 ) ]

Where M is the final maturity amount, R is the monthly investment installment, i is the quarterly interest rate (annual interest / 400), and n is the total tenure represented in quarters (total months / 3).

Yes, Tax Deducted at Source (TDS) is applicable on interest income earned from recurring deposits. Under Income Tax laws, if your total interest earned across all accounts in a single bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), the bank will deduct TDS at 10% (provided you have submitted your PAN). If PAN is not provided, the TDS rate increases to 20%. You can submit Form 15G or 15H if your annual income falls below the taxable slab.

Yes, banks generally allow premature closing or withdrawal of Recurring Deposits. However, they usually charge a premature penalty (often 0.5% to 1.0% lower than the interest rate originally offered for the duration the deposit was kept). Partial withdrawals are generally not supported for standard RD accounts, unlike FDs which might permit sweep-in facilities.

For most Indian commercial banks and post offices, the minimum period for opening a Recurring Deposit account is 6 months (though some post office schemes default to a minimum of 5 years). The maximum tenure allowed is 10 years (120 months), conforming to standard fixed deposit limitations.

Recurring Deposits are considered one of the safest investment vehicles available. The interest rate is locked at the beginning of the deposit, meaning it is not subject to market volatility. Furthermore, bank deposits (both principal and interest combined up to ₹5 Lakhs per depositor per bank) are fully insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India (RBI).