Recurring Deposit (RD) in India — How It Works, Interest Calculation, and Tax
A Recurring Deposit (RD) is a systematic savings product offered by banks and post offices where you deposit a fixed amount every month for a predetermined period and receive the principal plus accumulated interest at maturity. It combines the discipline of monthly saving with the safety of a bank fixed deposit.
RD Interest Calculation: Banks compute RD interest using the quarterly compounding formula applied to each monthly installment separately from its date of deposit. The actual formula is complex, but the effective annualised return is slightly less than the stated interest rate because early installments compound for the full tenure while later installments compound for shorter periods. Online calculators (including this one) account for this correctly.
Current RD Interest Rates (July 2026): Major banks offer 5.5-7.5% for 1-3 year RDs. Senior citizens typically receive 0.25-0.5% extra. Small finance banks (AU, Ujjivan, Jana) offer 7.5-8.5%. Post Office RD earns 6.7% for 5-year tenure. Compare RDs using the maturity amount rather than the stated interest rate, as compounding differences can create meaningful differences.
RD vs SIP — What's the Difference?: Both involve monthly investments, but the similarity ends there. An RD invests in a bank deposit — guaranteed principal, fixed return, no market risk. An SIP invests in mutual funds — no guaranteed return, market-linked growth with potential for much higher long-term returns but also potential loss. RD is suitable for short-term goals (1-3 years) where capital safety is paramount. SIP is better for long-term goals (5+ years) where higher returns are needed to beat inflation.
Tax on RD Interest: RD interest is fully taxable as 'income from other sources' in the year it accrues (not just when received). If annual interest exceeds ₹40,000 (₹50,000 for senior citizens), TDS at 10% is deducted by the bank. If your income is below the taxable limit, submit Form 15G (or 15H for seniors) to the bank at the start of each financial year to prevent TDS deduction. Even if TDS is deducted, you can claim it as credit in your ITR.
CalcuTools India · Free calculator · Updated July 2026 · FY 2025-26 · Not financial advice · About · How we verify
How It Works: Recurring Deposit Mechanics
A Recurring Deposit (RD) is a unique term deposit offered by Indian Banks and the Post Office. It allows individuals to build a corpus by depositing a fixed sum every month, while earning interest rates comparable to Fixed Deposits (FDs). It is the debt-market equivalent of a mutual fund SIP.
The Quarterly Compounding Reality
Unlike mutual funds which compound daily/monthly, Indian banking regulations mandate that RD interest is compounded quarterly. This means the bank calculates interest every month, but only adds it to your principal balance at the end of the quarter (every 3 months) to generate compound growth.
SIP vs RD: The 2026 Strategy
RDs provide zero-risk, guaranteed capital protection and are heavily insured by the DICGC up to ₹5 Lakhs. However, the interest earned is fully taxable per your income slab. For goals strictly under 3 years (like saving for a downpayment), an RD is superior. For wealth generation over 5+ years, Equity SIPs historically outperform RDs by heavily beating inflation.
🔄 Last Updated: July 2026 · FY 2025-26 rates applied
Formula: A = P × [(1 + r/n)^(nt) − 1] × (1 + r/n) / (r/n) for monthly deposits. Where r = annual rate, n = compounding periods per year, t = years.
Worked Example
Monthly deposit ₹5,000 for 5 years at 6.8%. Total deposited = ₹3,00,000. Maturity value = ₹3,56,420. Interest earned = ₹56,420. RD interest is taxable at slab rate.
ℹ️ For informational use only. Results are estimates based on inputs provided. Not financial, tax, or investment advice. Consult a qualified professional for personalised guidance. Rates are indicative and may vary. Read full disclaimer.
This free Indian calculator helps you quickly compute accurate results for rd — updated for FY 2025-26. All calculations use official formulas verified against government and authoritative sources.
How to Use This Calculator
Enter your values in the fields above and click Calculate. Results update instantly. You can adjust any input and recalculate as many times as needed — completely free with no sign-up required.
Accuracy and Verification
Our rd formulas are sourced from official Indian regulatory bodies including the Income Tax Department, EPFO, RBI, Ministry of Finance, and WHO where applicable. We verify results against official calculators before publishing and update with every budget and policy change.
Disclaimer
Results from this calculator are indicative and for informational purposes only. For significant financial decisions, consult a qualified financial advisor, chartered accountant, or relevant professional. Tax laws and rates change — always verify with official sources before acting on results.
CalcuTools India · Free calculator platform · About us · How we verify · Last Updated July 2026 · FY 2025-26