A Recurring Deposit (RD) is a savings scheme offered by banks and post offices in India where you deposit a fixed amount every month for a predetermined tenure. At maturity, you receive the total deposited amount along with the interest earned. RDs are regulated by RBI and combine the regularity of monthly savings with the higher returns of fixed deposits.
Post Office RDs offer a government-backed option with attractive rates (currently 6.7% p.a., compounded quarterly), accessible at any India Post office without the need for a savings account.
RD Interest Formula
RD interest is compounded quarterly. Each monthly instalment earns interest from the month it is deposited until maturity. The calculation treats each deposit as a mini-FD for the remaining tenure:
RD Maturity Value (each instalment compounded quarterly)M = Σ R × (1 + r/4)^(n/3)
R = Monthly instalment | r = Annual interest rate
n = Number of months remaining for that instalment at maturity
Sum is taken over all n instalments
RD vs SIP: Key Differences
Feature
RD
SIP (Mutual Fund)
Returns
Fixed (5–7%)
Market-linked (8–15%+)
Risk
None
Market risk
DICGC Insurance
Yes (up to ₹5L)
No
Tax on Returns
Fully taxable at slab rate
LTCG 12.5% (equity, >1yr)
Best For
Short-term goals, risk-averse
Long-term wealth creation
Post Office RD vs Bank RD in India
Feature
Post Office RD
Bank RD
Interest Rate (2026)
6.7% p.a.
5.5–8.5% (varies by bank)
Tenure
5 years (fixed)
6 months to 10 years
Minimum Deposit
₹100/month
₹100–₹500/month
Safety
Sovereign government guarantee
DICGC insured up to ₹5L
TDS
No TDS deducted
TDS if annual interest > ₹40,000
Best for
Safety, no TDS paperwork
Flexibility, higher rates at SFBs
Post Office RD's no-TDS advantage matters for investors in high tax brackets — no Form 15G/15H required, no TDS certificate tracking, and no deposit insurance cap given the sovereign guarantee.
Frequently Asked Questions
Banks deduct TDS at 10% on RD interest if the total interest from a bank in a financial year exceeds ₹40,000 (₹50,000 for senior citizens). Submit Form 15G (if below 60, income below taxable limit) or Form 15H (senior citizens with income below taxable limit) to avoid TDS deduction. Post Office RDs are not subject to TDS.
Yes, most banks allow premature closure of RDs, typically after a minimum period (often 3–6 months). A penalty of 0.5% to 1% is usually deducted from the applicable interest rate. Post Office RDs can be closed after 3 years on request. Check the terms with your specific bank before opening.
Missing an RD instalment incurs a penalty — typically ₹1–2 per ₹100 per month of default. If multiple consecutive instalments are missed, the bank may close the RD prematurely. Post Office RDs allow up to 4 defaults; the 5th consecutive default results in account discontinuation (though you can revive it by paying dues + penalty).
📋 Disclaimer & Source: All data and calculations on this page are for informational purposes only and do not constitute financial advice. Rate data sourced from Ministry of Finance, Government of India and RBI notifications. Last reviewed: April 15, 2026. Consult a SEBI-registered advisor before investing. · Full Disclaimer