RD stands for Recurring Deposit. It is a special term deposit offered by Indian banks, post offices, and NBFCs that allows individuals to deposit a fixed amount every month for a predetermined tenure and earn interest at a rate equivalent to that offered on Fixed Deposits (FDs). At the end of the tenure, the depositor receives the total deposited amount (principal) along with accumulated interest as a lump sum.
| Parameter | Details |
| Full Form | Recurring Deposit |
| Offered By | Banks, India Post (Post Office), and NBFCs |
| Minimum Deposit | As low as Rs.10 to Rs.100 per month (varies by bank) |
| Tenure Range | Minimum 6 months to maximum 10 years |
| Interest Rate | 4.50% to 8.50% p.a. (general citizens); 0.50% to 0.80% higher for senior citizens |
| Interest Compounding | Quarterly compounding; paid at maturity |
| Premature Withdrawal | Allowed with penalty in most banks |
| Taxation | Interest taxable as per income slab; TDS if interest exceeds Rs.40,000 p.a. |
| Loan Facility | Available against RD balance (overdraft/loan against RD) |
RD Meaning and Definition
RD means a bank account where a fixed sum of money is deposited every month for a selected tenure, earning compound interest at a fixed rate, with the total maturity amount (principal plus accumulated interest) paid out as a lump sum at the end of the tenure.
A Recurring Deposit is similar to a Fixed Deposit in that it offers fixed, guaranteed returns. The key difference is that FDs require a lump sum investment upfront, while RDs allow individuals with regular income to build savings through small, manageable monthly instalments. This makes RDs particularly suitable for salaried individuals, students, and first-time investors who want to cultivate a savings habit without committing a large amount at once.
RD interest is compounded quarterly in most banks. The maturity value is calculated using the formula: M = P × [(1+r/n)^(nt) – 1] / [1-(1+r/n)^(-1/3)], where P is the monthly instalment, r is the annual interest rate, n is the compounding frequency (4 for quarterly), and t is the tenure in years. Interest earned on RDs is taxable — TDS applies if interest exceeds Rs.40,000 per financial year (Rs.50,000 for senior citizens).
How RD Works — Step by Step
Step 1 — Account Opening: The customer fills an RD application form specifying the monthly instalment amount, tenure, and nominee. KYC documents are submitted. The account is opened online or at the bank branch.
Step 2 — Standing Instruction Setup: A standing instruction is set up to auto-debit the fixed monthly instalment from the customer’s savings or current account on a specified date each month.
Step 3 — Monthly Deposits: The fixed instalment is automatically debited every month. If a payment is missed, the bank may charge a late fee or penalty as per its terms.
Step 4 — Interest Accumulation: The bank calculates and compounds interest quarterly on the accumulated RD balance. The interest is not paid out monthly — it accumulates and is paid at maturity.
Step 5 — Maturity Payout: On the maturity date, the total amount — sum of all monthly deposits plus the accumulated compound interest — is credited to the customer’s linked savings account.
Key Features of RD
- Low risk — RD is not market-linked; returns are guaranteed at the pre-agreed fixed rate
- Flexible tenure — choose from 6 months to 10 years based on financial goals
- Low minimum investment — start with as little as Rs.100 per month in most banks
- Senior citizens receive higher interest rates (0.50% to 0.80% p.a. additional)
- Loan facility available — overdraft or loan against RD balance at most banks
- Premature withdrawal allowed with applicable penalty
Frequently Asked Questions
Q: What is the full form of RD in bank?
RD stands for Recurring Deposit. It is a fixed monthly deposit scheme offered by banks and post offices, where a fixed amount is deposited every month for a selected tenure and interest is paid at maturity.
Q: What is the difference between RD and FD?
An FD (Fixed Deposit) requires a one-time lump sum investment. An RD (Recurring Deposit) involves fixed monthly deposits. Both earn similar interest rates, but RDs are suited for regular savers while FDs are for those with a lump sum to invest.
Q: Is RD interest taxable?
Yes. Interest earned on RDs is added to the depositor’s total income and taxed as per their income tax slab. TDS is deducted by the bank if the annual interest exceeds Rs.40,000 (Rs.50,000 for senior citizens).
Q: Can I withdraw an RD before maturity?
Yes, premature withdrawal is allowed at most banks, but a penalty is charged — typically a reduction in the interest rate applicable. The exact penalty varies by bank and is specified in the RD account terms.
