Take a recurring deposit of Rs 10,000 a month at 6.5 percent annual interest for 60 months, compounded quarterly. Each monthly instalment earns interest only for the time it stays invested, so the first deposit compounds for nearly the full 5 years while the last one barely earns anything. Adding up every instalment with its own compounding period gives a maturity value of about Rs 7,09,908. Over the 60 months you deposit Rs 6,00,000, so the interest earned is about Rs 1,09,908. The return is lower than a lump-sum FD of the same total because in an RD your money goes in gradually rather than all at once, so the average amount invested over the period is smaller. RDs suit salaried savers building a habit, where a guaranteed return matters more than maximising growth.
Step
Value
Monthly deposit
Rs 10,000
Rate and tenure
6.5 percent, 60 months
Total deposited
Rs 6,00,000
Interest earned
Rs 1,09,908
Maturity value
Rs 7,09,908
How it is calculated
An RD is a series of monthly deposits, each compounding quarterly for the time it remains invested. The calculator works the quarterly rate as the annual rate divided by four, then for each of the monthly instalments it raises 1 plus that quarterly rate to the number of quarters that instalment stays invested, and sums the results. The total deposited is simply the monthly amount times the number of months, and the interest is the maturity minus that total. Like FD interest, RD interest is taxable at your slab rate, and banks deduct TDS once annual interest crosses the threshold. Because deposits enter gradually, an RD always earns less than a lump-sum FD of the same total at the same rate, but it removes the need to have the whole amount available on day one.
Frequently asked questions
RD vs SIP?
RD gives a fixed, guaranteed return (~6-7%). SIP in equity has higher expected return (~12%) but with market risk. RD suits short-term goals; SIP suits 5+ year goals.
Is RD interest taxable in India?
Yes. Interest earned on an RD is fully taxable at your applicable income tax slab rate. Banks deduct TDS at 10 percent once the total interest from a branch exceeds Rs 40,000 in a financial year (Rs 50,000 for senior citizens). You must declare the accrued interest in your ITR each year, not just at maturity.
What is the difference between bank RD and post office RD?
Both follow quarterly compounding. Post office RD rates are set by the Government of India each quarter and are currently 6.7 percent per annum. Bank RD rates vary by institution and tenure. Post office RDs have a fixed 5-year tenure, while most banks allow tenures from 6 months to 10 years. Both carry deposit insurance up to Rs 5 lakh through DICGC.
Can I break an RD before maturity?
Yes, premature withdrawal is allowed at most banks and at the post office. The penalty is typically 0.5 to 1 percent deducted from the rate applicable for the period the deposit was held. Interest is paid at the lower rate for completed quarters. Some banks do not allow premature closure within the first three months.