Mera Hisab
What is a recurring deposit?
A recurring deposit (RD) lets you save a fixed amount every month at a bank or post office and earn a fixed interest rate on it. At the end of the tenure you receive all your deposits plus interest. It is a simple way to build savings from a monthly income, for example for school fees, a festival or a down payment.
How is RD maturity calculated?
Each monthly instalment earns interest, compounded quarterly, for the months it stays deposited. The first instalment earns interest for the full tenure; the last one for just one month. Adding them up:
Maturity = Σ R × (1 + r ÷ 400)k ÷ 3, for k = 1 to n
- R = monthly deposit
- r = annual interest rate (%)
- n = number of monthly instalments
- k = months each instalment stays deposited
Examples
| Monthly deposit | Rate | Tenure | Total deposited | Interest earned | Maturity amount |
|---|---|---|---|---|---|
| ₹1,000 | 7% | 1 year | ₹12,000 | ₹462 | ₹12,462 |
| ₹5,000 | 7% | 3 years | ₹1,80,000 | ₹20,686 | ₹2,00,686 |
| ₹2,000 | 7% | 5 years | ₹1,20,000 | ₹23,866 | ₹1,43,866 |
| ₹5,000 | 6.5% | 5 years | ₹3,00,000 | ₹54,954 | ₹3,54,954 |
Notice that interest grows faster with a longer tenure, because early instalments keep earning interest on interest.
RD, FD or SIP?
- RD: fixed, guaranteed return; good for saving from a monthly income.
- FD: better when you already have a lump sum, because the whole amount earns interest from day one.
- SIP: monthly investment in mutual funds; returns are not guaranteed but can be higher over long periods.
Tips
- Set up auto-debit on your salary date so you never miss an instalment.
- Check the penalty for missed instalments. Banks usually charge a small fee, and several missed instalments can close the account.
- Remember tax. RD interest is taxable at your slab rate, and TDS rules are the same as for FDs.
- Compare with the post office. The Post Office RD has a 5-year tenure and quarterly compounding; its rate is revised every quarter, so check the current rate on the India Post website.
Frequently asked questions
Which is better, RD or FD?
If you already have the money, an FD usually earns more because the full amount earns interest from the first day. An RD is better when you want to save a fixed amount from your income every month.
What happens if I miss an RD instalment?
Most banks charge a small penalty for a late instalment. If several instalments are missed, the bank may close the RD and return your money with interest.
Is RD interest taxable?
Yes. RD interest is added to your income and taxed at your slab rate. Banks deduct TDS if your total interest from the bank crosses the yearly threshold.
Can I close an RD before maturity?
Most banks allow premature closure, but pay a lower interest rate and may charge a penalty.
Why is my bank's maturity amount slightly different?
Banks may round interest at each quarter or count days slightly differently. The difference is usually just a few rupees.