What is the penalty for premature withdrawal of RD?

Most banks charge a penalty of 0.5% to 1% reduction in interest rate for premature closure of an RD. For example, if your RD rate was 6.5% and you close it before tenure, you'll receive 5.5%–6% instead. Some banks also have a minimum tenure requirement (usually 3–6 months) before premature closure is allowed.

Can I change the monthly deposit amount in an RD?

No. Once an RD is opened, the monthly installment amount is fixed and cannot be changed. If you want to invest more, you need to open a new RD. If you miss an installment, banks typically charge a small penalty (usually ₹1.50 per ₹100 per month for private banks). Missing too many installments can result in RD closure.

RD Calculator — Recurring Deposit Returns Calculator

Q: Is TDS deducted on RD interest?

Yes. TDS (Tax Deducted at Source) is deducted on RD interest if the total interest earned across all your deposits with a bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). TDS is deducted at 10%. You can submit Form 15G (or 15H for seniors) to avoid TDS if your total income is below the taxable limit.

Q: What is the minimum tenure for an RD?

The minimum tenure for an RD varies by bank. Most banks offer RDs starting from 6 months, going up to 10 years (120 months). Post Office RDs have a fixed tenure of 5 years. SBI, HDFC, and ICICI all offer flexible tenures from 6 months to 10 years in monthly intervals.

Q: Can I open a joint RD account?

Yes, most banks allow joint RD accounts. Typically, the joint account can have up to 2 account holders. Both holders share equal ownership. In case of death of one holder, the surviving holder retains full ownership. TDS is deducted in the primary account holder's name.

Q: What are Post Office RD rates and benefits?

Post Office RD (5-year) currently offers 6.7% p.a. with quarterly compounding. Key benefits: government-backed (100% safe), available at all post offices across India, accepts deposits from ₹100/month with no maximum limit, and interest is compounded quarterly. Post Office RD is ideal for rural investors and those without easy bank access.

What is a Recurring Deposit (RD)?

A Recurring Deposit (RD) is a savings instrument offered by banks and post offices where you deposit a fixed amount every month for a predetermined tenure. At the end of the tenure, you receive your total deposits plus the accumulated interest — all in one lump sum.

Unlike a Fixed Deposit (FD) where you invest a lump sum upfront, an RD is designed for people who want to save small amounts regularly. Think of it as a forced savings habit: you commit to depositing ₹5,000 every month for 2 years, and at maturity, you get back approximately ₹1.32 lakh (at 6.5% rate) — more than if you had simply kept the money in a savings account.

RD vs FD — Key Differences

Feature	Recurring Deposit (RD)	Fixed Deposit (FD)
Investment Style	Monthly installments	Lump sum upfront
Minimum Amount	₹100/month (varies by bank)	₹1,000–₹5,000 lump sum
Interest Rate	Slightly lower (0.1–0.25%)	Slightly higher
Compounding	Quarterly	Quarterly or monthly
Flexibility	Fixed monthly commitment	One-time, flexible tenor
Best For	Regular savers, salaried	Lump sum available
Tax on Interest	Taxable as income	Taxable as income

RD Formula — Quarterly Compounding Explained

Banks use quarterly compounding for RDs. This means interest is compounded 4 times per year. The standard RD maturity formula is:

RD Maturity Formula (Quarterly Compounding) M = R × [(1 + r/4)^(4n) – 1] / [1 – (1 + r/4)^(–1/3)]

Where: M = Maturity Value | R = Monthly installment | r = Annual interest rate (decimal) | n = Tenure in years

This formula accounts for the fact that each monthly installment earns compound interest for a different number of quarters (the first installment earns interest for the full tenure, while the last installment earns interest for just one month).

Worked Example

Monthly deposit: ₹5,000 | Rate: 6.5% | Tenure: 24 months (2 years)

Total deposited: ₹5,000 × 24 = ₹1,20,000
Maturity amount (quarterly compounding): ≈ ₹1,28,600
Interest earned: ≈ ₹8,600
Effective annual yield: ~7.17% (slightly higher than stated 6.5% due to quarterly compounding effect)

Quarterly compounding tip: The effective annual yield of a 6.5% RD is actually ~6.66% due to quarterly compounding. This is why RD interest appears to be slightly higher than the stated nominal rate.

Current RD Rates (Indicative — 2025–26)

Bank	1 Year RD	2 Year RD	5 Year RD	Senior Citizen
SBI	6.80%	6.50%	6.50%	+0.50%
HDFC Bank	6.60%	7.00%	7.00%	+0.50%
ICICI Bank	6.70%	7.10%	7.00%	+0.50%
Post Office (PO-RD)	—	—	6.70%	—
Small Finance Banks	7.50%+	7.50%+	7.75%+	+0.50%

* Rates are indicative and change frequently. Check your bank's website for current rates before investing.

RD vs SIP — Which is Better for Monthly Savings?

Factor	RD (Bank)	SIP (Mutual Fund)
Returns	6–7.5% (guaranteed)	10–15% (market-linked, historical)
Safety	100% safe (DICGC insured up to ₹5L)	Market risk present
Tax on Returns	Taxable as income	12.5% LTCG (above ₹1.25L for equity)
Inflation Beating	Barely (6.5% vs 6% inflation)	Yes (12% vs 6% inflation)
Liquidity	Good (penalty only 0.5–1%)	Excellent (T+3 days)
Ideal For	Short goals (1–3 yrs), emergency fund	Long-term goals (5+ yrs)

Smart strategy: Use RD for short-term goals (1–3 years) where capital protection matters most. Use SIP for goals 5+ years away where market returns can significantly outperform. Never use RD as a long-term wealth creation tool — inflation erodes real returns.

Frequently Asked Questions

What is the penalty for premature RD withdrawal? +

Most banks charge a 0.5%–1% reduction in the applicable interest rate. If your RD rate was 6.5% and you close early, you'll receive 5.5%–6% instead. Some banks require a minimum tenure (3–6 months) before premature closure. Post Office RDs have a 3-year lock-in — no premature closure before 3 years.

Is TDS deducted on RD interest? +

Yes. TDS at 10% is deducted if total interest from all deposits in a bank exceeds ₹40,000/year (₹50,000 for senior citizens). Submit Form 15G (or 15H for seniors) if your total income is below the basic exemption limit to avoid TDS deduction.

What is the minimum tenure for an RD? +

Most banks offer RDs from 6 months to 10 years in flexible monthly intervals. Post Office RD has a fixed 5-year tenure. Some banks like SBI offer as short as 3 months. For maximum interest, choose tenures that align with the bank's peak rate slabs (often 1–2 years or 3–5 years).

Can I change the monthly deposit amount in an existing RD? +

No. The monthly installment is fixed at the time of opening and cannot be changed. If you want to invest more, open a second RD. Missing installments typically incurs a penalty of ₹1.50 per ₹100 per month for private banks.

Can I open a joint RD account? +

Yes, most banks allow joint RD accounts (up to 2 holders). Both share equal ownership. In case of the primary holder's death, the surviving holder retains full ownership. TDS is deducted in the primary account holder's PAN.

What are Post Office RD rates and benefits? +

Post Office RD currently offers 6.7% p.a. with quarterly compounding, for a fixed 5-year tenure. Benefits: government-backed (100% safe), minimum ₹100/month, available at all post offices. Ideal for rural investors and those seeking government-guaranteed savings.

RD Calculator

Cumulative Deposit vs Maturity Value