Recurring Deposit (RD)
Plan your savings with estimates for Recurring Deposit maturity values.
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.
📉 RD vs SIP: A Quick Reality Check
While RDs are safe, they struggle to beat inflation effectively.
- RD Interest: ~7.0%
- Tax (30% Bracket): -2.1%
- Net Return: 4.9%
- Inflation: ~6.0%
Verdict: Use RD for goals < 3 years away. For > 5 years, prefer Equity SIPs.
How is RD Interest Calculated? (The Math)
RD calculation is surprisingly complex. Even though you deposit money monthly, most banks calculate interest using 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.
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.
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.