What a recurring deposit is
You commit to depositing the same amount every month for a fixed term at a rate agreed at the start. The rate is locked for the whole tenure, and each instalment earns interest for however long it remains in the account.
It is the fixed-income counterpart to a SIP: regular contributions, no market exposure, and a maturity value you can know in advance rather than estimate.
Why each instalment earns a different amount
This is the whole arithmetic of an RD. Your first instalment is in the account for the entire tenure; the last one for a single month. The maturity value is the sum of each instalment compounded for its own remaining period.
M = Σ P × (1 + r/4)^(4 × months_remaining / 12)
Banks compound an RD quarterly, as they do a fixed deposit, which is why the rate is divided by four.
A consequence worth internalising: an RD will always yield less than a fixed deposit of the same total amount at the same rate, because in an RD most of the money arrives late and spends less time earning. ₹5,000 a month for five years and a ₹3,00,000 lumpsum for five years are not comparable, even though both total ₹3,00,000.
RD against the alternatives
Against a fixed deposit. An FD needs the whole sum today. An RD is for building a sum you do not yet have. If you have the money now, an FD earns more.
Against a SIP. Both are monthly habits. An RD gives a known outcome and no risk; a SIP gives an unknown outcome with a higher expected return. For a goal eighteen months away, the RD's certainty is worth more than the SIP's expected return. For a goal fifteen years away, the reverse is usually true.
Against a savings account. An RD pays materially more than a savings balance and enforces the habit. The cost is liquidity.
How to use this calculator
- Enter the monthly investment you will deposit.
- Set the rate of interest your bank offers for that tenure. Senior citizens usually get a small premium.
- Set the time period. Bank RDs typically run from six months to ten years.
The output shows what you deposited, the interest earned and the total at maturity. The interest figure is gross — see below.
Tax and missed instalments
Tax. RD interest is fully taxable at your slab rate, exactly like an FD, with no special treatment for longer tenures. TDS applies once interest crosses ₹40,000 in a financial year (₹50,000 for senior citizens). At a 30% slab, a 6.5% RD returns about 4.6% after tax.
Missed instalments. An RD assumes you pay every month. Banks charge a small penalty for a missed instalment and may close the account after several consecutive misses, settling it at a reduced rate. Automate the standing instruction if you can.
Early closure. Permitted, with interest recalculated at the rate applicable to the period completed, plus a penalty. As with an FD, breaking it early costs more than the headline penalty suggests.