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Many people cannot park a large sum in a fixed deposit, but can set aside ₹2,000 or ₹5,000 every month. A recurring deposit is built for exactly that. You pick an amount, a tenure and get a fixed rate from the bank, and at the end you receive everything back with interest. The surprise is usually in the maths: the total is not “deposit × months × rate”, because each instalment earns for a different length of time.
What a recurring deposit is
An RD is a bank (or post office) product where you deposit a fixed amount on a fixed day every month for a chosen period, usually from 6 months to 10 years. The rate is fixed at the start, so the maturity amount is known on day one. It is closer to a fixed deposit that you build slowly than to a mutual fund. There is no market risk, and also no chance of a market-sized return.
- You save from your salary every month
- Each instalment earns from its own date
- Good for building a habit
- You already have the full amount
- All of it earns from day one
- Better if you have a bonus or windfall
Both are safe and fixed. The right one depends on how your money arrives, monthly or in a lump.
How the maturity amount is calculated
Banks usually compound RD interest every quarter. The standard formula for the maturity value M of a monthly deposit R at an annual rate r, with i = r ÷ 400 for the quarterly rate and n quarters, is:
Think of each instalment as its own small deposit. The first ₹5,000 goes in on day one and earns for 60 months. The second earns for 59 months, and so on until the last, which earns for one month. Add up what each instalment grows into and you have the maturity amount.
- 1Month 1₹5,000 goes in and will earn interest for all 60 months.
- 2Month 30The 30th instalment goes in with 31 months to go.
- 3Month 60The last ₹5,000 earns for only one month.
- 4MaturityEvery instalment, plus its own interest, is paid out together.
The ₹5,000 a month example, in numbers
Interest is about one rupee for every five you deposit. The rest of the money is simply your own savings returned.
- Your deposits₹3,00,000
- Interest₹59,664
83% of what you receive is your own money. The interest is a bonus, not a salary.
Why the early instalments do the heavy lifting
An instalment made in month 1 earns for five full years. One made in month 60 earns for a single month. At 7%, the first ₹5,000 earns about ₹2,074 of interest, the 30th about ₹982, and the last only ₹29. That is roughly 70 times more for the first than for the last.
Each bar is one ₹5,000 instalment compounded quarterly for the months it stays in. The numbers add up across all 60 instalments to the ₹59,664 total.
This also explains a feature of RD that surprises people: the interest earned in the last year is nearly ten times the first year, even though the instalments are all the same. By then you have a big balance earning interest, and the money keeps compounding.
You deposit ₹60,000 every year, but the interest column keeps growing: ₹2.3k, 6.8k, 11.6k, 16.7k and 22.2k (rounded). Staying the full tenure matters.
The two lines start together and slowly pull apart. The gap, which is the interest, widens faster each year.
What changes the result
Tenure matters more than rate
Because interest compounds on a growing balance, a longer tenure improves the percentage gain much more than a slightly higher rate does. Ten years at the same 7% earns about 45 paise for every rupee you deposit. Five years earns about 20 paise.
Doubling the tenure from 5 to 10 years more than doubles the percentage gain, from 19.9% to 44.8%. The x-axis is not evenly spaced in years, only in the steps shown.
| Monthly deposit | 1 year | 3 years | 5 years |
|---|---|---|---|
| ₹1,000 | ₹12,462 | ₹40,137 | ₹71,933 |
| ₹2,000 | ₹24,924 | ₹80,275 | ₹1,43,866 |
| ₹5,000 | ₹62,311 | ₹2,00,686 | ₹3,59,664 |
| ₹10,000 | ₹1,24,621 | ₹4,01,373 | ₹7,19,328 |
The ringed cell is our ₹5,000 a month, 5-year case. Maturity grows in proportion to the deposit (double the deposit, double the result), so scaling an RD up or down is easy.
A one percent change in rate
For ₹5,000 a month over 5 years, each additional percentage point in the rate adds roughly ₹9,000 to ₹9,600 to the maturity. That is useful, but small next to the ₹3 lakh you put in.
Moving from 5% to 8% adds about ₹28,000 over five years. The bars look similar because the base, your own deposits, dominates.
Tax on RD interest
RD interest is added to your income and taxed at your slab rate, whether or not you take the money out. Banks may deduct TDS if the interest in a year crosses a threshold. That limit has changed in recent Budgets, so check your bank for the current figure. If your total income is below the taxable limit, you can submit a declaration form to avoid TDS.
- Maturity on the statement
- After 30% tax on the interest
- What you deposited
Tax of about ₹17,900 takes the effective gain from ₹59,664 to ₹41,765. The same effect is explained for fixed deposits in FD after tax and inflation.
RD versus other ways to save monthly
A recurring deposit is a good fit when the money has a date and cannot be at risk: a school fee in three years, a wedding next year, a gadget, an emergency buffer. For goals over seven or ten years, savers also consider equity mutual funds through a SIP. Here is how ₹5,000 a month for five years looks under three very different assumptions.
The 12% figure is an assumption, not a promise. Markets can return far less, or lose money, over five years. The RD and savings numbers are fixed by contract. See what a SIP can tell you for the longer view.
None of these is “best”. Match the tool to the time you have. For money you need within three years, the certainty of an RD is worth its modest return. For goals decades away, a mix of safe and growth assets is more common. If you are saving for a specific target, the monthly saving for ₹10 lakh guide shows how rate and time trade off.
A checklist before you open one
- Pick an amount you will not miss. Set up an auto-debit for the day after your salary arrives.
- Choose the tenure to match the goal. Do not lock the money for 10 years if you need it in 3.
- Compare rates. Small finance banks and some co-operative banks may offer more, but check the deposit insurance limit before putting in large sums.
- Check the compounding. Quarterly is common. A lower rate with more frequent compounding may still beat a higher rate with simple interest.
- Remember the tax. Plan with the after-tax figure if you are in a higher slab.
- Review at maturity. Renew, withdraw, or move the money to the next goal on purpose, rather than leaving it idle.
A recurring deposit rewards patience more than cleverness. Put in ₹5,000 for 60 months and the arithmetic does the rest. Use the calculator above to try your own amount, rate and tenure, and see the ₹3,59,664 become a number for your goal.
Questions people ask
How is the RD maturity amount calculated?
Banks compound the interest quarterly. Each monthly instalment earns interest from its deposit date to maturity, and the maturity value is the sum of all instalments grown at the quarterly rate.
How much will ₹5,000 a month become in 5 years at 7%?
About ₹3,59,664. You deposit ₹3,00,000 and earn about ₹59,664 as interest.
Is RD interest taxable?
Yes. RD interest is added to your income and taxed at your slab rate. Banks may deduct TDS above a yearly interest limit, which has changed in recent Budgets, so check the current figure.
Which is better, RD or FD?
An FD suits a lump sum you already have, because all of it earns from day one. An RD suits monthly savings. Both give a fixed, bank-guaranteed return.
What happens if I miss an RD instalment?
Most banks charge a small late fee per missed instalment, and several missed payments can lead to the RD being closed early at a reduced rate.
Can I withdraw my RD before maturity?
Usually yes, but at a lower interest rate and sometimes with a penalty. Check your bank’s terms before opening the deposit.