A recurring deposit (RD) is a savings account where you put in the same amount every month for a fixed period, and the bank or post office pays a fixed interest rate on the growing balance. At the end of the term you receive all your instalments plus the interest in one payment.
Think of it as a fixed deposit built one month at a time. This page explains the meaning of a recurring deposit account, how the interest is calculated, the main types, and when it is the right choice. The post office version has its own guide, linked below. This is an independent site, not a bank or India Post.
At a glance
Full form
RD, recurring depositYou pay
A fixed sum every monthInterest
Fixed rate, usually compounded quarterlyTerms
6 months to 10 years at banks; 5 years at the post officePost office rate
6.7%Tax
Interest taxable
Recurring deposit meaning, with an everyday example
Suppose a nurse decides to keep aside ₹3,000 from every salary for a scooter in two years. She opens an RD of ₹3,000 a month for 24 months. Each deposit starts earning interest from the day it goes in, and every quarter the interest is added to the balance. After 24 months she gets her ₹72,000 back with the interest on top, in one payment.
That is all a recurring deposit means: regular deposits, a fixed rate, a fixed end date. The discipline comes from the monthly commitment, and the certainty from the rate being locked on day one.
How recurring deposit interest is calculated
Indian banks and the post office compound RD interest every quarter. Because each instalment stays in for a different length of time, the maths adds up sixty or so small calculations. The usual formula banks show is:
M = R × [(1 + i) to the power n, minus 1] ÷ [1 minus (1 + i) to the power minus 1/3], where R is the monthly deposit, i the quarterly rate and n the number of quarters. You do not need to work it by hand; the recurring deposit calculator does it for any rate and term.
Recurring deposit interest rates: where they stand
| Where | Typical RD rate | Note |
|---|---|---|
| Post office, 5 years | 6.7% | Same for all ages, government backed |
| Large public sector banks | Close to their FD rate for that term | Seniors usually get about 0.5% more |
| Small finance banks | Often higher | Different risk; insured to ₹5 lakh |
Bank RD rates follow that bank's FD card for the same tenure. For the largest public sector lender, see its recurring deposit rates; for the post office, see post office RD interest rate.
What happens at RD maturity and after
On the maturity date the bank or post office credits the full amount to your linked savings account. Some banks let you set the RD to roll into a fixed deposit automatically. If nothing is set, the money waits in the savings account at its lower rate.
A good habit is to decide in advance: either spend it on the goal it was saved for, or move it straight into the next deposit. Money that sits idle for months after maturity loses much of the benefit the RD built up.
Benefits of a recurring deposit
- Starts small: ₹100 a month at the post office, and similar low minimums at most banks.
- Fixed return: the rate does not change after you open the account.
- Builds a habit: a standing instruction takes the money before you can spend it.
- Loan facility: most RDs let you borrow against the balance.
Drawbacks to know before opening an RD account
- Interest is taxable every year, so the after tax return can be modest.
- You cannot increase the monthly amount later; you open a new RD instead.
- Missed instalments carry a penalty.
- Over long periods, a fixed RD rate may not keep up with rising prices.
Whether these matter depends on the goal. For a known cost two to five years away, an RD is hard to beat for simplicity.
Types of recurring deposit
| Type | What it means |
|---|---|
| Regular RD | Fixed monthly amount, fixed term |
| Flexi RD | Some banks let you vary the amount within limits |
| Daily RD | Small daily deposits collected by an agent, mostly at co-operative banks |
| Post office RD | Five years, government backed, from ₹100 |
| Senior citizen RD | Bank RD with the senior extra rate |
RD vs FD vs SIP in one line each
- RD: monthly saving, fixed return. Good when you have income but no lump sum.
- FD: one lump sum, fixed return. Good when you already have the money. Compare the two on FD vs RD.
- SIP: monthly investing in mutual funds, return not fixed. Good for goals far away, with market risk.
How to open a recurring deposit account
- Pick the bank or post office and the term that ends when you need the money.
- Choose an amount you can pay even in a tight month.
- Open it online through net banking or at the branch with KYC documents.
- Set a standing instruction from your savings account.
- Add a nominee.
For the post office route, see the post office RD scheme. A Hindi explanation is on recurring deposit meaning in Hindi.
Frequently asked questions
What is a recurring deposit in simple words?
A savings plan where you deposit the same amount every month for a fixed time at a fixed rate, and get it all back with interest at the end.
What is the full form of RD?
Recurring deposit.
Is a recurring deposit good?
It is good for saving a fixed sum each month toward a goal a few years away. For long goals, its fixed rate may lag inflation after tax.
Is recurring deposit interest taxable?
Yes. Yes. It counts as income every year, and banks cut TDS once it crosses the limit.
Can I withdraw a recurring deposit early?
Banks usually allow it with a penalty. The post office allows closure after three years at the savings rate.
Which is better, RD or SIP?
An RD gives a fixed, safe return. A SIP can earn more over long periods but can also fall in value.
How is an RD different from a savings account?
A savings account lets you add and withdraw any time at a low rate. An RD asks for a fixed monthly amount and locks it for the term, and pays a higher, fixed rate in return.