What is a Recurring Deposit?
A Recurring Deposit (RD) is a bank deposit scheme where you invest a fixed amount every month for a pre-decided tenure at a fixed interest rate. It combines the discipline of a SIP with the safety of a fixed deposit. At the end of the tenure, you receive the total deposits plus compound interest. RDs are ideal for salaried individuals who want to build short-term savings for specific goals like a holiday, gadget or wedding expenses.
RD Formula
M = P × [(1+i)^N − 1] / i × (1+i)
Where P is the monthly instalment, i is the monthly interest rate and N is the total number of months. Banks typically compound RDs quarterly but the results are close to monthly compounding for planning purposes.
RD vs SIP
Both RDs and SIPs are monthly contributions, but they behave very differently. An RD gives you a fixed, guaranteed 6–7% return and is fully taxable. A SIP in an equity mutual fund has historically delivered 11–14% annualised but without any guarantee. Over 10+ years a SIP will almost always beat an RD, but RDs remain useful for goals less than 3 years away where capital safety is paramount.
Frequently Asked Questions
What is the minimum RD amount?
Most banks accept RDs from ₹100 per month.
Is RD interest taxable?
Yes, it is fully taxable at your income slab, and TDS is deducted if interest exceeds ₹40,000 per year.
Can I miss an RD instalment?
You'll usually be charged a small penalty per missed instalment. Repeated defaults may lead to premature closure.