Investments · 6 min read
Recurring Deposit (RD): Complete Guide for Indian Savers
RD is the simplest disciplined savings tool. Learn how quarterly compounding works, current rates across banks, and when RD beats SIP.
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1.How RD works
A Recurring Deposit requires you to deposit a fixed amount every month for a chosen tenure (6 months to 10 years). Interest is **compounded quarterly** in most banks. Current RD rates (April 2026): SBI 6.5%, HDFC 7.0%, Post Office RD 6.7%. Example: ₹10,000/month RD at 7.0% for 5 years → maturity amount = **₹7,19,048** (₹6,00,000 invested + ₹1,19,048 interest).
2.RD vs SIP: when the guaranteed option wins
SIPs in equity mutual funds average 12-14% long-term but can be -20% in a bad year. RD gives guaranteed 6.5-7.0% with zero downside risk. RD is better for: goals within 1-3 years (car down payment, vacation fund, emergency reserve), people who cannot tolerate any capital loss, and senior citizens who need predictable income. SIP is better for goals 7+ years away.
3.Tax implications of RD interest
RD interest is taxable at your slab rate. TDS is deducted if interest exceeds ₹40,000/year (₹50,000 for senior citizens) across all FDs and RDs in the same bank. For a 30% bracket investor, the post-tax return on a 7% RD is effectively **4.9%** — barely above inflation. This is why RDs are best for short-term parking, not wealth building.
4.Post Office RD vs bank RD
Post Office RD at 6.7% has sovereign guarantee (no bank failure risk) and allows premature closure after 3 years with a penalty of ₹1 per ₹100 per quarter. Bank RDs offer slightly higher rates (HDFC 7.0%, IDFC First 7.25%) but carry bank credit risk. For amounts above ₹5 lakh, spreading across Post Office RD + a top-rated bank RD reduces concentration risk.
5.Key takeaway
RD is a savings discipline tool, not a wealth-building tool. Use it for short-term goals (1-3 years) where capital safety matters more than returns. For longer horizons, SIPs and PPF outperform RDs significantly after tax. Use our RD calculator to see exact maturity amounts at your chosen rate and tenure.