What is a Recurring Deposit (RD)?

A Recurring Deposit (RD) is a fixed deposit investment where you deposit a fixed amount monthly for a set period. It encourages disciplined savings and earns interest, which is paid at maturity or as per the scheme.

Who is eligible to open an RD account?

Indian residents, including minors with a guardian, can open an RD account. NRIs (Non-Resident Indians) may also open one under specific terms set by the bank.

What is the minimum and maximum investment in RD?

The minimum monthly deposit typically starts from ₹100 to ₹500, depending on the bank. There’s usually no maximum limit, but deposits must be in multiples of ₹10 or ₹100, as per bank rules.

What is the interest rate on an RD account?

Recurring Deposit interest rates generally range from 5.5% to 7.5% per annum and are fixed at the time of account opening. Rates may vary by bank and scheme.

What is the typical tenure for an RD?

The tenure for an RD ranges from 6 months to 10 years. Most banks offer terms of 1 to 5 years as the standard investment duration.

Is RD interest taxable in India?

Yes, interest earned on an RD is taxable as per your income tax slab. TDS is deducted if annual interest exceeds ₹40,000 (₹50,000 for senior citizens).

Can I withdraw my RD before maturity?

Yes, premature RD withdrawal is allowed but may attract a penalty. Also, interest is recalculated at a lower rate based on the actual holding period.

Is it possible to take a loan against an RD?

Yes, most banks allow loans up to 90% of the RD amount. The loan interest rate is slightly higher than the RD rate and is subject to bank terms.

How is interest on RD calculated?

RD interest is calculated and compounded quarterly. It remains fixed throughout the tenure and is paid either monthly or at maturity, based on the scheme.

What happens after an RD matures?

At maturity, the principal and interest are credited to your linked bank account. You can reinvest the amount or opt for automatic renewal, if offered by the bank.

RD Calculator - Calculate Recurring Deposit Maturity Value

Recurring Deposit (RD) - A Comprehensive Guide

What is an RD?

A Recurring Deposit (RD) is a popular savings scheme offered by banks and financial institutions in India. In an RD, you deposit a fixed amount regularly for a specified time period. In return, the bank provides interest on the deposited amount, compounded periodically (usually quarterly). This type of investment encourages disciplined savings and can offer good returns with minimal risk.

While it may not offer the highest returns compared to other investment options like Mutual Funds, it is perfect for risk-averse individuals and those who want a disciplined, low-risk way of saving for medium-term goals. The regular monthly deposit forces the investor to save without a large initial investment.

Benefits of RD

Easy to Start: Requires no large initial investment.
Safe and Risk-Free: Guaranteed returns, backed by the bank.
Disciplined Saving: Helps develop a disciplined saving habit with regular contributions.
Flexible Tenure: Choose the tenure and deposit amount based on your financial goals.
Loan Facility: Some banks offer loans against the RD balance in case of emergency.
Premature Withdrawal: Allowed with penalties and reduced interest.
Tax-Saving Opportunity: Certain RD schemes qualify for tax benefits under Section 80C.

How to Open an RD?

Eligibility: Any individual (single or joint) can open an RD, either with or without a guardian for minors.
Documents Required: Basic KYC documents such as Aadhar, passport, address proof, and photographs.
Online Opening: Most banks offer the option to open RDs online through their websites or apps, making the process easy and convenient.

How Does RD Work?

The maturity amount of a Recurring Deposit (RD) is calculated using the formula for compound interest, with interest compounded periodically (usually quarterly or monthly). Since an RD involves monthly deposits, we use a formula that accounts for those periodic contributions.

RD Calculation Formula:

For monthly deposits, the formula for calculating the maturity amount (A) is:

A = P × (((1 + r/n)^(nt) - 1) × (1 + r/n)) / (r/n)

Where:

A = Amount of money accumulated after n years, including interest.
P = Monthly invested amount.
r = Annual interest rate (in decimal form, e.g., 8% = 0.08).
n = Number of times the interest is compounded per year (typically 12 for monthly compounding).
t = Time period for which the RD is invested, in years.

Let's consider an example. Mr. Shyam decides to deposit ₹5,000 every month for 1 year in an RD scheme with an annual interest rate of 6%. The interest is compounded monthly.

- Monthly Investment (P) = ₹5,000
- Expected Annual Return Rate (r) = 6% (0.06)
- Number of times interest is compounded per year (n) = 12 (monthly compounding)
- Time Period (t) = 1 year

For this example, Mr. Shyam's total contribution over the entire period will be ₹60,000 (₹5,000 × 12 months).

Let's break down how the maturity amount is calculated:

For monthly compounding, the formula becomes:

A = 5000 × (((1 + 0.06/12)^(12×1) - 1) × (1 + 0.06/12)) / (0.06/12)

So, after 1 year of depositing ₹5,000 every month, Mr. Shyam will receive approximately ₹61,984 at maturity, which includes both his principal contribution and the interest earned.

This example assumes a 6% annual interest rate compounded monthly. The actual maturity amount may differ based on the actual interest rate provided by the bank and the frequency of compounding.

Interest Rates on RDs

Interest rates for RDs vary from bank to bank and can range between 5% to 7% per annum. The interest is compounded quarterly, meaning that the interest earned is added to the principal amount at the end of each quarter, which increases the total interest over time.

Interest rates can vary based on factors such as the bank, tenure, and the depositor's profile. Higher interest rates are usually offered for longer tenures.

Important Note: The interest rate on an RD varies depending on the chosen tenure, with longer tenures generally offering higher interest rates. It's always advisable to check with your specific bank or financial institution for their exact RD tenure options and terms and conditions.

Tax on RDs

Taxability: The interest earned on RDs is taxable under the Income Tax Act.
Tax-saving RDs: These come with a 5-year lock-in period and qualify for deductions under Section 80C of the Income Tax Act.
TDS (Tax Deducted at Source): TDS (Tax Deducted at Source) is deducted by the bank if the interest earned exceeds ₹40,000 in a financial year (₹50,000 for senior citizens).
Form 15G/15H: You can submit these forms to avoid TDS if your total income is below the tax threshold.

Premature Withdrawal and Penalty

Early withdrawal from an RD is possible but usually comes with a penalty. This typically involves a reduction in the interest rate (usually 1% lower than the original rate). Some banks may not allow partial withdrawals, and if allowed, you might not receive any interest, or you may only receive your principal amount, so it's important to plan accordingly.

Conclusion

RDs are ideal for conservative investors who want to save money regularly while earning guaranteed returns. It is also suitable for individuals looking to accumulate funds for short to medium-term goals like buying a car, a vacation, or building an emergency fund. Moreover, RDs help in creating a disciplined approach to saving money.

Whether you are a salaried individual, a student, or anyone looking for a risk-free, fixed-return investment, an RD can be a great addition to your financial portfolio.

Recurring Deposit Calculator