How an RD differs from an FD
A recurring deposit takes a fixed sum from your account every month for a set tenure, paying a guaranteed rate. A fixed deposit takes one lump sum upfront. The rate is usually similar, but the returns are not comparable at face value.
The reason is exposure time. In an RD your first instalment earns interest for the full tenure, but your last earns for barely a month. The average instalment is invested for a little over half the term, so an RD earns roughly half what the same total in an FD would.
- M
- Maturity amount
- P
- Monthly instalment
- r
- Annual rate as a decimal
- ni
- Months the i-th instalment stays invested
Each instalment is compounded quarterly for however long it remains deposited, and the results are summed. This is what Indian banks actually do, and it is what this calculator models.
A worked example
Interest of ₹59,664 on ₹3,00,000 deposited. The same ₹3,00,000 placed as a single FD for 5 years at 7% would have grown to about ₹4,24,433 — the difference is entirely down to when the money went in.
Tax and missed instalments
Tax treatment
RD interest is fully taxable at your slab rate as income from other sources, on an accrual basis. Banks deduct 10% TDS once interest across your deposits exceeds ₹50,000 in a financial year, or ₹1,00,000 for senior citizens. Submit Form 15G or 15H if your income is below the taxable threshold.
Missing an instalment
Most banks charge a penalty of ₹1 to ₹2 per ₹100 per month on the missed amount. After six consecutive missed instalments many banks close the account prematurely and pay out at the applicable lower rate.
Premature closure
Allowed, with a penalty of typically 1% and interest recalculated at the rate for the period completed. Most banks require a minimum of three months before closure is permitted at all.
| Tenure | Deposited | Maturity | Interest |
|---|---|---|---|
| 1 year | ₹12,000 | ₹12,462 | ₹462 |
| 2 years | ₹24,000 | ₹25,820 | ₹1,820 |
| 3 years | ₹36,000 | ₹40,137 | ₹4,137 |
| 5 years | ₹60,000 | ₹71,933 | ₹11,933 |
| 10 years | ₹1,20,000 | ₹1,73,702 | ₹53,702 |
Frequently asked questions
How is RD maturity calculated?
Each monthly instalment is compounded quarterly for the number of months it remains deposited, and the results are summed. The first instalment earns for the full tenure, the last for about one month.
This is why a simple annual-interest calculation gives the wrong answer for an RD.
Which gives more, an RD or an FD?
An FD, for the same total amount, because all the money is invested from day one. On ₹3,00,000 at 7% over 5 years an FD yields around ₹4,24,433 while an RD of ₹5,000 a month yields about ₹3,59,664.
But the comparison assumes you already have ₹3,00,000. If you are saving from monthly income, an RD is the right instrument.
Is RD interest taxable?
Yes, fully, at your slab rate, on accrual each year. TDS of 10% applies once interest exceeds ₹50,000 a year (₹1,00,000 for seniors).
There is no tax-saving variant of an RD equivalent to a 5-year tax-saving FD.
What if I miss an RD instalment?
Banks charge roughly ₹1 to ₹2 per ₹100 per month on the missed amount. Six consecutive misses typically triggers premature closure at a reduced rate.
If cash flow is uncertain, choose a lower instalment you can sustain rather than an ambitious one you may miss.
Should I choose an RD or a SIP?
An RD guarantees the return and the capital; a SIP does not, but has historically returned considerably more over long periods. For goals under three years, an RD is the safer choice. Beyond seven years, equity SIPs have the stronger record.
Compare directly with the SIP calculator.