What Is a Recurring Deposit (RD)?
A recurring deposit (RD) is a savings product where you deposit a fixed amount every month for a fixed tenure at a fixed interest rate. It turns a small monthly habit into a guaranteed lump sum at maturity, making it ideal for building savings from a regular income.
Why a recurring deposit matters
An RD is the disciplined cousin of the fixed deposit: instead of needing a lump sum upfront, you commit a small amount each month. It suits salaried savers building toward a near-term goal — a gadget, a trip, or topping up an emergency fund.
Because the return is guaranteed and capital is safe, an RD is a low-risk way to save. The trade-off is the same as an FD: returns may barely beat inflation after tax, so it is a saving tool, not a wealth-building one.
How a recurring deposit works
You choose a monthly amount and a tenure, and the bank debits that amount every month. Each instalment earns interest at the agreed rate, compounded quarterly, and the full maturity value — all your deposits plus interest — is paid at the end. Miss instalments and you may face small penalties. For a goal-based monthly habit with guaranteed returns, an RD is a natural fit; for a lump sum you already have, an FD suits better.
A real Indian example of a recurring deposit
Meena opens a 2-year RD of ₹5,000 a month at an assumed 6.5% per year. She deposits ₹1,20,000 over 24 months, and at maturity receives roughly ₹1,28,000 — about ₹8,000 of interest. If she is in the 20% slab, that interest is taxed at her slab rate. Rates vary by bank and tenure, so check the current rate before opening one.
Benefits
Common mistakes
Best practices
Recurring deposit vs fixed deposit
| Recurring deposit | Fixed deposit | |
|---|---|---|
| You invest | A fixed amount monthly | One lump sum upfront |
| Best for | Saving from income | Money you already have |
| Return | Fixed rate | Fixed rate |
| Goal fit | Building toward a target | Parking a lump sum safely |
Frequently asked questions about a recurring deposit
Is RD interest taxable?
Yes. RD interest is added to your income and taxed at your slab rate. Banks may deduct TDS if your interest crosses the threshold; you can submit Form 15G/15H if your income is below the taxable limit.
RD or FD — which is better?
They suit different situations. An RD helps you save a fixed amount every month from your income; an FD locks a lump sum you already have. Both offer guaranteed returns; pick based on whether you have the money now or will save it gradually.
Can I withdraw an RD early?
Usually yes, with a small penalty and slightly lower interest. Some banks allow partial withdrawal or a loan against the RD balance instead of closing it.
RD or SIP for my goal?
For short-term goals where safety matters, an RD is fine. For long-term goals, a SIP in a mutual fund has higher expected returns (with market risk) and lets compounding work harder.
Related terms
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How BudgetAnalyzer uses this
BudgetAnalyzer lets you record RDs and other savings alongside your bank balances, so your monthly saving shows up in your net worth and you can see the goal filling up over time.
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