Recurring Deposit Guide: Interest Rates and RD vs FD

A recurring deposit is one of the simplest savings instruments in India: you deposit a fixed amount every month for a set tenure, earn guaranteed interest, and receive the lump sum at maturity. No market risk, no NAV fluctuations, no lock-in surprises. If you have ₹1,00,0 to ₹5,000 per month that you want to save safely without thinking about market timing or fund selection, an RD is the straightforward answer. It won’t make you rich, but it won’t lose your money either, and for a first-time saver building the discipline of monthly investing, that predictability is genuinely valuable.

Current recurring deposit interest rates in 2026 range from 6.5% to 7.5% at major banks (SBI, HDFC, ICICI) for tenures of 1 to 5 years. Post Office RD offers around 6.7% for a 5-year tenure. These rates are subject to change quarterly, but they’ve been stable in this range for over a year now. Calculate exactly what your monthly deposit grows to using our RD Calculator.

What Is a Recurring Deposit and How Does It Work?

When you open a recurring deposit account at a bank or Post Office, you commit to depositing a fixed amount every month for a chosen tenure (typically 6 months to 10 years, though Post Office RD is fixed at 5 years). The bank pays you interest on each deposit from the date it’s made, and the interest compounds quarterly. At maturity, you receive all your deposits plus accumulated interest as one lump sum.

The minimum deposit varies by institution. SBI allows FDs/RDs from ₹100/month. HDFC Bank starts at ₹1,000. Post Office RD starts at ₹100 with no upper limit. There’s no TDS deduction at source on Post Office RDs (a quiet advantage most people overlook), though interest above ₹40,000 in a financial year is still taxable and must be reported in your ITR.

One important quirk: if you miss a monthly installment, most banks charge a small penalty (typically ₹1-₹2 per ₹100 of the missed deposit per month). Three consecutive missed installments can result in the RD being prematurely closed. Auto-debit from your savings account on a fixed date is the easy fix.

Recurring Deposit vs Fixed Deposit: Which Should You Choose?

This is the most common comparison, and it depends entirely on whether you have the money upfront or not. An FD requires a lump sum. If you have ₹60,000 sitting in your savings account right now, an FD at 7% for 1 year gives you roughly ₹64,200 at maturity. That’s the full amount earning interest from day one.

An RD of ₹5,000/month for 12 months at the same 7% gives you roughly ₹62,100 at maturity. You’ve deposited the same ₹60,000 total, but each installment earned interest for a shorter period. Your first ₹5,000 earned 12 months of interest, your last ₹5,000 earned just 1 month. The FD earns more because all ₹60,000 worked for the full year.

So FD wins on pure returns when you have the lump sum available. RD wins when you don’t, which is the reality for most salaried savers building savings from monthly income. If you’re comparing rates across banks, our FD Calculator handles the lump sum side while the RD Calculator handles the monthly deposit side.

There’s one more difference worth knowing: premature withdrawal. Breaking an FD early usually costs you 0.5-1% in reduced interest. Breaking an RD early also reduces your effective interest rate, but since your deposits went in at different times, the penalty math is messier. The practical takeaway: don’t break either one early if you can avoid it.

Post Office RD: Why It Still Makes Sense in 2026

The India Post recurring deposit scheme has three quiet advantages that bank RDs don’t. First, the interest rate (currently around 6.7% for 5 years) is set by the government and doesn’t fluctuate with bank-specific decisions. Second, there’s no TDS deducted at source, which means your full interest amount stays in the account until maturity. You still owe tax on the interest if it crosses ₹40,000, but not having TDS withheld improves your cash flow. Third, Post Office deposits up to ₹5 lakh per account are covered by the government’s sovereign guarantee, which is stronger than the DICGC’s ₹5 lakh insurance on bank deposits.

The Post Office RD at ₹1,000 per month for 5 years is one of the most searched variants, and the numbers work out neatly: total deposit of ₹60,000 over 60 months matures to roughly ₹69,700 at 6.7%. If you step up to ₹5,000/month, the 5-year maturity is approximately ₹3,48,500 on a total deposit of ₹3,00,000. That ₹48,500 in interest is entirely risk-free. Run any amount through the RD Calculator to see exact projections.

The catch: Post Office RDs are only available in 5-year tenures. If you want a 1-year or 3-year RD, you’ll need to go with a bank.

RD vs SIP: The Real Question Most First-Time Investors Face

This comparison matters more than RD vs FD for anyone under 35, because the choice isn’t really between two savings products. It’s between guaranteed low returns and market-linked potentially higher returns, and the right answer depends on your horizon and risk appetite.

An RD at 7% is perfectly appropriate for a goal that’s 1-3 years away (a vacation, a wedding expense, an emergency fund top-up). You know exactly what you’ll get, and you cannot afford a 15% market dip six months before the wedding. For anything over 5 years, a SIP in an equity mutual fund historically delivers 10-14% annualized returns, which makes an RD look expensive in terms of the growth you’re leaving on the table.

The numbers make this concrete. ₹5,000/month for 5 years: RD at 7% gives you roughly ₹3,58,000. A SIP at 12% gives you roughly ₹4,12,000. That’s a ₹54,000 difference on the same monthly commitment, and the gap widens dramatically over 10 or 15 years. But the SIP number is not guaranteed. In a bad 5-year stretch, the SIP could return 6% or even less, while the RD still delivers its promised 7%.

My honest take: if you’re new to saving and the idea of your balance dropping by 10% in a bad month makes you want to withdraw everything, start with an RD. Build the monthly savings habit. Get to ₹1,00,000 or ₹2,00,000 in saved capital. Then move future monthly savings into a SIP once you’re comfortable with the concept of temporary volatility. The habit matters more than the vehicle, especially in year one. Compare SIP projections for yourself using our SIP Calculator.

Is RD Interest Taxable?

Yes. RD interest is taxed at your income tax slab rate. There is no separate tax treatment or exemption for RD interest. Banks deduct TDS at 10% if your total interest income from all deposits (FD + RD combined) exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). Post Office RDs do not deduct TDS at source, but the tax liability still exists.

If your total annual income is below the taxable limit, you can submit Form 15G (or 15H for senior citizens) to avoid TDS deduction on bank RDs. This doesn’t eliminate the tax, it just prevents the bank from withholding it upfront.

One comparison worth noting: PPF interest is entirely tax-free, and ELSS mutual funds get favorable long-term capital gains treatment. RD interest gets neither benefit. If tax efficiency matters and you can handle a longer lock-in, PPF at 7.1% (tax-free) effectively outperforms an RD at 7% (taxable). Our FD vs PPF vs SIP comparison covers this trade-off in detail.

Start with the RD Calculator to see what your chosen monthly deposit grows to at current rates, pick the tenure that matches your goal, and set up the auto-debit. For money you need back within 1-3 years, an RD is still one of the most sensible places to put it.