5-Year RD Interest Rates: Post Office vs Bank Rates, Returns and Calculation

An RD differs from a fixed deposit because the entire principal is not invested at the beginning.

Consider a monthly deposit of Rs. 5,000:

• The first Rs. 5,000 instalment remains invested for most of the five-year period.
• A deposit made halfway through the tenure earns interest for a shorter period.
• The final Rs. 5,000 instalment earns interest for only a limited period before maturity.

This is why an RD and an FD offering the same annual interest rate do not produce the same maturity amount when the total amount deposited over five years is compared.

Does every instalment earn interest for five years?

No.

Each instalment has a different investment period. The first instalment has the longest period, while the final instalment has the shortest.

This is one of the most important differences between an RD and a lump-sum FD.

The maturity amount depends on the institution's calculation method and the applicable rate.

For illustration, assume a monthly instalment of Rs. 5,000 for 60 months:

Total amount deposited = Rs. 5,000 × 60 = Rs. 3,00,000

The maturity value will be higher than Rs. 3,00,000 because the deposits earn interest. However, the exact maturity amount should be obtained from the institution's RD calculator or maturity-value table rather than applying a lump-sum FD formula to the entire Rs. 3,00,000.

Illustrative investment amounts

The actual maturity value will depend on the applicable RD rate and the institution's calculation methodology.

Yes. An RD calculator can estimate the maturity value using:

• Monthly instalment
• Interest rate
• Tenure
• Deposit frequency
• Applicable institution's RD calculation method

A typical calculation follows the principle that each monthly instalment earns interest for a different duration.

For example, changing the monthly instalment from Rs. 5,000 to Rs. 10,000 approximately doubles the total principal deposited over the same 60-month period. The interest earned will also generally increase, although the exact maturity amount depends on the rate and calculation method.

What is the difference between a Post Office RD and a bank RD?

The Post Office RD's Rs. 100 minimum deposit is documented in India Post's scheme material, while bank minimums vary by institution.

Missing an instalment can result in a default charge or other consequences under the institution's rules.

For a Post Office RD, the applicable default fee is prescribed under the National Savings Recurring Deposit Scheme. The account may also be treated as discontinued after multiple consecutive defaults unless it is revived according to the applicable rules.

Because bank policies differ, a bank RD's missed-payment charge should be checked against the specific bank's current terms.

How can you avoid missed instalments?

A standing instruction or automated debit can help maintain regular payments, provided sufficient funds are available in the linked account.

It is also useful to select a monthly instalment that remains manageable throughout the five-year period.

Yes, but premature withdrawal is subject to the rules of the institution.

Post Office RD

The Post Office permits premature closure of an RD subject to the applicable scheme conditions. The amount payable may differ from the value that would have been received if the account had continued until maturity.

Bank RD

Banks generally permit premature closure subject to their terms and applicable interest-rate adjustments or penalties.

There is therefore no single premature-withdrawal rule applicable to every bank RD.

A regular five-year RD should not be confused with a 5-year tax-saving fixed deposit.

The fact that an RD has a five-year tenure does not by itself make its monthly contributions eligible for a Section 80C deduction under the earlier Income-tax Act, 1961.

For tax year 2026-27 and later periods, the Income-tax Act, 2025 applies to relevant income and transactions from 1 April 2026. The new Act reorganises the earlier TDS provisions while retaining the broad tax policy and thresholds.

Tax deductions should therefore be checked against the provisions applicable to the relevant tax year rather than relying on the tenure alone.

RD interest is generally taxable as income in the hands of the depositor and is included in the computation of taxable income at the applicable rate.

The tax treatment is different from the question of TDS.

What is the difference between tax and TDS?

Tax: The actual income-tax liability calculated on your taxable income.

TDS: Tax deducted by the institution at source when the applicable threshold and conditions are met.

TDS does not necessarily equal your final tax liability. The amount deducted can be considered when calculating the overall tax payable or refundable

For interest payments or credits from 1 April 2026, the Income-tax Act, 2025 applies. The Income Tax Department states that the new Act retains the TDS rates and monetary thresholds while consolidating the earlier TDS provisions under Section 393.

The applicable threshold and TDS treatment can depend on the type of institution and depositor. Therefore, the earlier blanket statement that every bank RD is subject to TDS only after Rs. 40,000, or Rs. 50,000 for senior citizens, should not be used without checking the applicable current provision.

For tax-year 2026-27 onward, the relevant provision under the Income-tax Act, 2025 should be referred to when determining the applicable TDS.

Regular savings

An RD allows a person to build a corpus through relatively small, periodic deposits instead of requiring a large initial amount.

Predictable returns

The applicable RD interest rate is generally fixed according to the product terms when the RD is opened.

Structured saving

A fixed monthly commitment can make it easier to set aside money for a defined five-year goal.

Suitable for planned expenses

An RD may be considered for goals such as education expenses, planned purchases or other medium-term financial requirements where a predictable maturity amount is useful.

Monthly commitment

The depositor needs to maintain sufficient funds for regular instalments.

Lower compounding on later instalments

Later deposits have less time to earn interest than earlier deposits.

Premature withdrawal conditions

Closing an RD before maturity may affect the interest payable.

Interest-rate differences

The rate offered by one bank may differ significantly from another institution's rate.

Tax on interest

The interest earned is generally taxable according to the applicable income-tax provisions.

If the same total amount is available at the start, an FD and RD should not be compared only by their headline interest rate because their cash-flow patterns are different.

Post Office small-savings schemes operate under the Government's small-savings framework, while eligible bank deposits are covered by DICGC deposit insurance subject to the applicable limit and conditions.

These are different protection mechanisms and should not be described as identical.

For bank deposits, DICGC deposit insurance is subject to the applicable aggregate limit per depositor per bank. The coverage includes principal and interest within the prescribed limit.

Who may consider a 5-year RD?

A 5-year RD may be relevant for someone who:

• Has regular monthly income.
• Wants to save towards a medium-term goal.
• Prefers a structured deposit product.
• Does not have a large lump sum available at the start.
• Wants relatively predictable returns rather than market-linked returns.

The suitability of an RD depends on the individual's cash flow, tax position, financial goal and other available savings options.