Recurring Deposits: Disciplined Saving With Guaranteed Returns
A recurring deposit (RD) lets you save a fixed amount every month for a chosen tenure, with a fixed interest rate locked in on the day you open it. It suits people who want to build savings steadily from their salary without taking market risk, for goals such as a holiday, a gadget, school fees or an emergency fund.
How RD maturity is calculated
Each monthly instalment earns interest from the month it is deposited until maturity. Most banks compound RD interest quarterly. The first instalment earns interest for the full tenure, while the last one earns for just one month. The calculator adds up the compounded value of every instalment to give the maturity amount:
Maturity = Σ R × (1 + r/4)4 × t, where R is the monthly deposit, r the yearly rate and t the time (in years) each instalment stays invested.
RD vs SIP
Both involve monthly saving, but they suit different needs. An RD gives a fixed, predictable return with very low risk. A SIP in mutual funds can offer higher long-term growth, but returns go up and down with the market. Many savers use RDs for short-term goals and SIPs for long-term ones.
Tips for RD savers
- Set up an automatic transfer on salary day so you never miss an instalment.
- Check penalties for missed instalments or early closure before you start.
- Remember tax. RD interest is usually taxable like FD interest.
- Pick a tenure that matches the goal date so the money matures when you need it.