How a recurring deposit works
A recurring deposit (RD) is a fixed deposit you build one month at a time. You choose a monthly amount and tenure, the bank debits it automatically, and at the end you receive all deposits plus interest. The rate is fixed on the day you open the RD, so later rate cuts don't affect you.
Each instalment earns interest only for the months it stays in the account. Banks compound that interest quarterly, which is exactly what this calculator does.
Maturity = Σ R × (1 + r/4)^(4 × tₖ)Worked example
Bank RD vs post office RD
The post office runs a 5-year recurring deposit with a government-set rate, currently 6.7% for July–September 2026. The same ₹5,000 a month there would mature at roughly ₹3,56,829. Post office RDs carry a sovereign guarantee, while bank RDs are covered by deposit insurance up to ₹5 lakh per bank.
RD or SIP?
| Recurring deposit | SIP in a mutual fund | |
|---|---|---|
| Return | Fixed and known | Market-linked, not guaranteed |
| Best for | Goals within 1–3 years | Goals 5+ years away |
| Tax | Interest taxed at your slab every year | Taxed only when you sell, often at lower rates |
| Missing a payment | Small penalty | No penalty; that month is skipped |
For comparison, the same ₹5,000 a month in an equity SIP earning 10% for the same period would be worth about ₹3,90,412, but with no guarantee.
RDs are good for short, fixed goals like a vacation or an insurance premium due next year. Interest is taxable at your slab rate, and TDS applies if your total interest at the bank crosses the yearly threshold.
Frequently asked questions
What happens if I miss an RD instalment?
Banks usually charge a small penalty per missed instalment. Missing several in a row can lead to the RD being closed early at a lower rate.
Can I withdraw an RD early?
Yes, most banks allow premature closure with a penalty on the interest rate. Post office RDs allow closure after three years.
Is RD interest taxable?
Yes, at your slab rate. TDS applies if your total interest at that bank crosses ₹50,000 in a year (₹1,00,000 for senior citizens).
Official references: India Post – Savings schemes