Recurring Deposit (RD)
Calculate RD maturity with monthly compounding.
Summary
A Recurring Deposit (RD) serves as the perfect middle ground for conservative investors who want the discipline of a SIP but the safety of a Fixed Deposit. By committing a fixed amount every month, you build a corpus systematically without exposing your capital to market risks.
RDs are particularly popular for short-term goals (1-3 years), such as planning a wedding, funding an annual vacation, or saving for a down payment on a car/home.
📉 The "Real Return" Problem
While RDs offer guaranteed returns, they struggle to beat inflation effectively.
- RD Interest: ~7.0%
- Tax (30% Bracket): -2.1%
- Net Return: 4.9%
- Inflation: ~6.0%
Result: Your purchasing power actually decreases. RDs are for saving, not wealth creation.
How is RD Interest Calculated? (The Math)
RD calculation is surprisingly complex. Even though you deposit monthly, banks usually follow the Quarterly Compounding formula used for FDs. This means the money you deposit in Month 1 earns interest for 12 months, the money in Month 2 earns for 11 months, and so on.
Our calculator simulates each installment individually to give you the precise maturity value that matches your bank passbook.
Post Office RD vs Bank RD
Investors often confuse the two. Here is how they differ:
Post Office RD
- Tenure: Fixed at 5 Years only.
- Interest: Often slightly higher than large banks.
- Safety: 100% Sovereign Guarantee.
- Flexibility: Low. Partial withdrawal allowed only after 1 year.
Bank RD
- Tenure: Flexible (6 months to 10 years).
- Interest: Varies by bank. Higher for seniors.
- Safety: Insured up to ₹5 Lakhs (DICGC).
- Flexibility: High. Can close anytime with penalty.
Important Rules to Remember
- Penalty for Missed Installments: Unlike SIPs where you can skip a month, banks charge a penalty (e.g., ₹1.50 per ₹100) if you miss an RD date.
- TDS Applicability: Just like FDs, RD interest is fully taxable. TDS is deducted if interest exceeds ₹40,000/year across all branches of the bank.
- Standing Instruction: It is highly recommended to set a Standing Instruction (SI) in your savings account to auto-debit the RD amount to avoid penalties.
Frequently Asked Questions
Can I increase the RD installment amount later?
No. The installment amount is fixed at the start. If you want to save more, you must open a second, separate RD account.
What is the minimum tenure for RD?
Most banks require a minimum tenure of 6 months. The maximum is usually 10 years.
Is RD interest tax-free for senior citizens?
No. However, senior citizens can claim a deduction of up to ₹50,000 on interest income (from FDs + RDs + Savings) under <strong>Section 80TTB</strong>.