What is recurring deposit (RD)? Meaning, features & benefits

In summary

• An RD allows regular deposits of a fixed amount for a predetermined tenure.
• The interest rate is generally fixed for the RD once the account is opened, subject to the terms of the institution.
• Interest calculation and compounding conventions can vary between banks and deposit providers, so the applicable product terms should be checked before opening an RD.
• RD interest is taxable under applicable income-tax rules. TDS may apply when the applicable Section 194A threshold is crossed.
• An RD can suit individuals who have a regular monthly surplus but do not have a large amount available for a lump-sum FD.
• A systematic deposit product such as the Systematic Deposit Plan (SDP) can also combine regular monthly deposits with separate fixed deposits for each instalment.

What is Recurring Deposit (RD)?

A Recurring Deposit, commonly called an RD, is a deposit account where an individual invests a fixed amount at regular intervals for a specified period. Monthly deposits are the most common structure.

Unlike a Fixed Deposit (FD), where the entire amount is invested at the beginning, an RD spreads the investment over multiple instalments.

For example, an individual depositing Rs.5,000 every month for 24 months contributes a total of Rs.1,20,000. The deposits earn interest according to the RD's applicable rate and calculation method.

The basic process is:

Choose monthly amount → Select tenure → Deposit regularly → Earn interest → Receive maturity amount

Banks generally allow customers to automate monthly deposits through standing instructions or other scheduled-payment arrangements. The minimum monthly deposit, tenure and applicable interest rate vary by institution.

For Post Office RD accounts, the National Savings Recurring Deposit Account has a five-year term, with monthly deposits starting from Rs.100 in multiples of Rs.10.

What are the features and types of recurring deposits?

RDs share several common features, although the exact terms depend on the bank or institution.

Regular monthly deposits

The depositor contributes a predetermined amount at regular intervals. This structure can help individuals save from their monthly income rather than setting aside a large lump sum.

Fixed tenure

The tenure is selected when the RD is opened. Bank RDs can have different tenure ranges, while specific government-backed schemes have their own prescribed periods.

Predetermined interest rate

The applicable interest rate is generally disclosed when the deposit is opened and applies according to the product's terms. Rates offered by banks can differ based on tenure, customer category and other applicable conditions.

Automated payments

A standing instruction or similar facility can be used to automate recurring contributions, reducing the need to make each payment manually.

Senior citizen RDs

Many banks offer an additional interest rate to eligible senior citizens. The additional rate and eligibility conditions vary between institutions.

Minor RDs

Banks may permit RDs to be opened for minors, subject to their account-opening and operating rules.

NRI deposit options

NRI deposit products have separate regulatory and eligibility requirements. For example, banks cannot accept recurring deposits under the FCNR(B) scheme.

How is recurring deposit interest calculated?

RD interest is calculated on the instalments deposited over the tenure. Since each instalment remains invested for a different length of time, the interest earned on an RD differs from that on an FD where the entire principal is invested from day one.

The calculation method can vary by institution. Banks are required to disclose the applicable method of calculation and relevant deposit terms.

A simplified RD calculation can be represented as:

Interest ≈ Monthly instalment × number of instalments × applicable rate × average investment period

For an exact maturity value, the institution's RD calculator or product-specific formula should be used because the result can depend on factors such as the date of instalment, compounding convention and deposit terms.

Example of an RD calculation

Suppose a saver deposits Rs.10,000 per month for 36 months.

• Total deposits = Rs.10,000 × 36
• Total principal = Rs.3,60,000
• Applicable interest rate = 7.00% p.a.
• Tenure = 36 months

The maturity value will be higher than Rs.3,60,000 because each instalment earns interest for the period for which it remains with the institution.

The exact maturity amount should be obtained from the relevant bank or deposit provider's RD calculation method rather than assuming that the entire Rs.3,60,000 earns 7% for the full three years.

Taxation, repatriation, tenure, and eligibility conditions differ between NRE and NRO recurring deposits. Senior citizens with separate lump-sum savings may also consider a Bajaj Finance Fixed Deposit.

How does a recurring deposit differ from a fixed deposit?

The online process varies between institutions, but the following steps are commonly required.

Both RDs and FDs are fixed-income deposit products, but their investment structures are different.

The primary difference is the timing of investment. With an FD, the complete principal starts earning interest from the beginning. With an RD, later instalments remain invested for shorter periods. Therefore, even if the nominal interest rate is the same, an RD and an FD with the same total principal can produce different maturity values.

What happens when Rs.3.60 lakh is invested through an RD or FD?

Consider a simplified comparison where the same total principal of Rs.3.60 lakh is invested over 36 months at 7.00% p.a.

For an FD, the full Rs.3.60 lakh is invested at the start. Using quarterly compounding for illustration:

Maturity value = Rs.3,60,000 × (1 + 7%/4)^12

This gives an illustrative maturity value of approximately Rs.4,43,318, before applicable tax considerations.

For an RD, the Rs.3.60 lakh is deposited in monthly instalments of Rs.10,000. Because the instalments enter the deposit at different times, they do not all earn interest for the full 36 months.

Therefore:

• FD: entire Rs.3.60 lakh earns interest from the beginning.
• RD: each Rs.10,000 instalment earns interest for its respective investment period.
• Result: the FD will generally generate more interest when the same total principal, rate and overall period are compared, because the complete principal is invested upfront.

Actual RD maturity values should be calculated using the specific institution's methodology.

What is a Systematic Deposit Plan and how is it different from an RD?

A Systematic Deposit Plan (SDP) is a structured deposit facility that allows regular deposits while treating each deposit as a separate Fixed Deposit.

For example, under the Systematic Deposit Plan offered by Bajaj Finance, each deposit is treated as a separate FD and receives a separate Fixed Deposit Receipt. The applicable tenure for each deposit is calculated from its respective deposit date.

The minimum deposit under the SDP is Rs.5,000 per deposit. Depending on the selected plan, deposits can either mature separately or be structured to mature on a common date.

The current published Bajaj Finance FD rate card, effective from w.e.f 07 October, 2026, shows rates of up to 7.75% p.a. for customers below 60 and 8.15% p.a. for senior citizens, depending on tenure and payout option. Rates can change, so the applicable rate should be checked before booking.

This makes the structure different from a conventional bank RD:

Not every institution accepts every applicant category. Check the provider’s eligibility rules before applying.You can review the general RD account opening process before applying.

What are the tax rules for recurring deposits?

RD interest is taxable under the applicable income-tax provisions. The tax treatment depends on the depositor's overall income, applicable tax regime and other circumstances.

TDS on RD interest

Section 194A provides for TDS on specified interest payments when the applicable threshold is crossed.

From 1 April 2025, the threshold for interest paid by banks, co-operative banking societies and Post Offices was increased to:

• Rs.50,000 for most depositors
• Rs.1,00,000 for senior citizens

These thresholds apply to the relevant categories covered by Section 194A and are subject to the applicable rules.

For other categories of interest payments, different thresholds can apply.

TDS is not the same as the final tax liability. Interest income may still need to be reported in the income-tax return, even where TDS has not been deducted.

Section 80TTB for senior citizens

A resident senior citizen may claim a deduction of up to Rs.50,000 on eligible interest from deposits with banks, post offices and co-operative banks under Section 80TTB, subject to the applicable conditions and tax regime.

Also Read: 5 Year RD in Post Office

What are the rules for premature withdrawal of an RD?

Premature closure or withdrawal can affect the interest earned on an RD.

For bank deposits, RBI permits banks to levy a premature-withdrawal penalty according to a board-approved policy. The applicable penalty and its components are required to be communicated to depositors when the deposit is accepted.

Therefore, there is no single universal RD premature-withdrawal penalty such as 1% or 2% that applies to every RD.

Depending on the product, premature closure may result in:

• A lower interest rate than the contracted rate
• A specific premature-withdrawal penalty
• Restrictions on the timing or availability of closure
• Different treatment for missed instalments or defaults

The exact terms should be checked in the RD's product documentation before opening the account.

Who may consider a recurring deposit?

An RD may be relevant for individuals who:

• Receive a regular monthly income
• Want to save a predetermined amount every month
• Do not have a large lump sum available for an FD
• Prefer a predetermined deposit structure
• Want to create a short- or medium-term savings pool

An RD may be less suitable where the entire required amount is already available as a lump sum and the objective is to keep that amount invested for the full tenure. In such cases, an FD provides a different structure because the full principal begins earning interest from the start.

The choice also depends on liquidity requirements, applicable rates, taxation and the terms of the specific deposit provider.

How can an FD calculator help compare deposit options?

An FD calculator can estimate the maturity amount and interest earned based on the deposit amount, tenure, interest rate and payout option.

For example, a calculator can be used to compare:

• A lump-sum FD of Rs.3.60 lakh for 36 months
• A monthly RD contribution of Rs.10,000 for 36 months
• Different interest rates
• Different tenures
• Cumulative and non-cumulative payout structures

For a current Bajaj Finance FD, the published deposit range is Rs.15,000 to Rs.3 crore, with tenures ranging from 12 to 60 months on the current rate card.

Use the Bajaj Finance FD calculator