Kotak Mahindra Bank vs Punjab & Sind Bank

What Is a Recurring Deposit and How Does It Work?

A Recurring Deposit (RD) is a term deposit offered by banks and post offices where you invest a fixed amount every month for a predetermined tenure. Unlike a Fixed Deposit where you need a lump sum, an RD lets you build wealth gradually — making it ideal for salaried individuals and students. Interest is compounded quarterly in most banks and the maturity amount includes your total deposits plus the accumulated interest. RD tenures range from 6 months to 10 years, and the minimum monthly installment starts at just Rs 100 in post offices and Rs 500–1,000 in most banks.

How Is RD Interest Calculated? Understanding the Quarterly Compounding Formula

Banks use the quarterly compounding formula to calculate RD maturity. For each monthly installment, interest is calculated from the date of deposit until maturity. The formula used is: M = R × [(1 + r/n)^(nt) – 1] / [1 – (1 + r/n)^(-1/3)], where M is maturity amount, R is the monthly installment, r is the annual interest rate, n is the compounding frequency (4 for quarterly), and t is the tenure in years. For example, depositing Rs 5,000 per month at 7.00% for 3 years gives you approximately Rs 2,00,000 in maturity value — of which around Rs 20,000 is interest earned. Our calculator above does this math instantly for both banks.

Why Should You Compare RD Rates Across Banks Before Investing?

Even a small difference of 0.25% to 0.50% in RD interest rates can make a noticeable difference in your final maturity amount, especially over longer tenures. For instance, on a monthly deposit of Rs 10,000 for 5 years, a 0.50% rate difference translates to roughly Rs 8,000–10,000 in extra interest. Private sector banks like IDFC First, Bandhan Bank, and RBL Bank often offer higher RD rates than public sector banks. However, public sector banks like SBI, PNB, and Bank of Baroda offer greater perceived safety. Comparing rates side by side — exactly what this tool does — ensures you pick the best deal for your money.

What Are the Tax Implications on Recurring Deposit Interest in India?

Interest earned on RDs is fully taxable under "Income from Other Sources" and is added to your total income for the financial year. If the total interest from all FDs and RDs in a bank exceeds Rs 40,000 in a year (Rs 50,000 for senior citizens), the bank deducts TDS at 10%. If you don't provide your PAN, TDS is deducted at 20%. You can submit Form 15G (below 60 years) or Form 15H (senior citizens) at the start of the financial year to avoid TDS if your total income is below the taxable limit. Unlike PPF or ELSS, RD deposits do not qualify for Section 80C deductions — the only exception is a 5-year Tax Saver FD. Always factor in your tax slab when comparing net returns.

Who Benefits Most from a Recurring Deposit?

RDs are best suited for conservative investors who want guaranteed, risk-free returns with the discipline of monthly savings. They work particularly well for salaried employees who can set up auto-debit, students building an emergency fund, homemakers saving for specific goals, and senior citizens who get an extra 0.25% to 0.75% interest rate bonus. RDs are also a smart parking spot for your short-term goals — like saving for a vacation, gadget, or down payment within 1–3 years. However, if your investment horizon is more than 5 years and you can tolerate market volatility, equity mutual funds or SIPs may offer significantly higher inflation-beating returns.

What Happens If You Miss an RD Installment?

Missing an RD installment attracts a penalty of Rs 1–2 per Rs 100 per month of default in most banks. If you miss 3 or more consecutive installments, the bank may prematurely close your RD and pay you the maturity amount at a reduced interest rate. Post office RDs allow a grace period of 5 days per month, and you can revive a defaulted RD within a certain window by paying the penalty. To avoid missed payments, set up a standing instruction or auto-debit from your savings account. Some banks also allow you to change the debit date to align with your salary credit date — ask your branch or check the net banking settings.

Can You Withdraw an RD Before Maturity? What Are the Penalties?

Yes, premature withdrawal of an RD is allowed in most banks, but it comes with a penalty of 0.50% to 1.00% reduction from the applicable interest rate. The bank recalculates interest at the rate applicable for the period the RD was actually held, minus the penalty. For example, if your 3-year RD carried a 7.00% rate but you close it after 1 year, the bank may pay you the 1-year FD rate (say 6.50%) minus the 1% penalty, effectively giving you only 5.50%. Some banks also require a minimum holding period of 3 months before allowing premature closure. A better alternative is to take a loan against your RD — most banks offer up to 80–90% of the deposit value at the RD rate plus 1–2%.

How Do Senior Citizen RD Rates Compare Across Banks?

Senior citizens (aged 60 years and above) get preferential RD rates — typically 0.25% to 0.75% higher than general citizen rates. Some banks like SBI, HDFC, and ICICI offer an additional 0.50%, while smaller private banks may offer up to 0.75% extra. Over a 5-year tenure with a monthly deposit of Rs 10,000, this extra rate can translate to Rs 5,000–15,000 in additional interest. Super senior citizens (aged 80+) may get an even higher premium in select banks. Use the "Senior" toggle in the calculator above to instantly see the rate difference and how much more you earn compared to general citizen rates.

RD vs FD vs SIP — Which Is Better for Your Savings?

Each instrument serves a different purpose. A Fixed Deposit is better if you have a lump sum and want a guaranteed return — FD rates are usually 0.10–0.25% higher than RD rates for the same tenure. A Systematic Investment Plan (SIP) in mutual funds offers potentially higher returns (10–12% CAGR historically) but carries market risk and no capital guarantee. An RD sits in between — it builds discipline like a SIP but with guaranteed returns like an FD. For risk-averse investors with a 1–3 year horizon, an RD at a competitive rate is often the smartest choice. For goals beyond 5 years, consider a mix of SIPs for growth and RDs for stability.

How to Open an RD Account — Documents and Eligibility

Opening an RD is straightforward. You need your Aadhaar card, PAN card, one passport-size photo, and a savings account with the bank. Most banks allow you to open an RD online through net banking or the mobile app in under 5 minutes. Eligibility is broad: Indian residents, HUFs, minors (through guardians), trusts, and NRIs can all open RDs. NRIs can open NRE or NRO RDs — NRE RDs are fully repatriable and tax-free in India, making them attractive for the diaspora. For the best rates, compare across banks using our tool above, then open the RD directly through the winning bank's website or app. Always confirm the rate on the bank's official page before investing, as rates change periodically.

What Happens to Your RD After the Account Holder's Death?

In the event of the account holder's death, the RD maturity proceeds (or premature closure amount) are paid to the registered nominee. If no nominee was registered, the legal heirs must submit a succession certificate, death certificate, and KYC documents to claim the funds — a process that can take weeks to months. This is why adding a nominee at the time of opening the RD is extremely important. Joint RDs with an "Either or Survivor" operating mode ensure seamless transfer to the surviving account holder without any paperwork delays. Banks are required to settle nominee claims within 15 days of receiving complete documentation as per RBI guidelines.