What is RD? Meaning, Interest Rates, Benefits & Examples
A Recurring Deposit (RD) is a savings scheme offered by banks and financial institutions where you deposit a fixed amount every month for a specified period and earn interest on it. It is ideal for individuals who want to build savings gradually.
RD Meaning
RD stands for Recurring Deposit. It allows you to invest small amounts regularly instead of a lump sum and earn guaranteed returns.
How Recurring Deposit Works
- Choose a monthly deposit amount
- Select a tenure (6 months to 10 years)
- Deposit money every month
- Earn interest on the deposited amount
- Receive maturity amount at the end of the tenure
RD Interest Rates
RD interest rates are similar to Fixed Deposit (FD) rates and vary based on the bank and tenure. Interest is usually compounded quarterly.
RD Calculation Formula
The maturity amount of RD is calculated using compound interest:
M = R × [(1 + i)^n - 1] / (1 - (1 + i)^(-1/3))
- R = Monthly deposit
- i = Interest rate / 400
- n = Number of months
RD Calculation Example
Suppose you deposit ₹5,000 per month for 2 years at 7% interest:
At maturity, you will receive approximately ₹1,29,000+ (including interest).
Types of Recurring Deposits
- Regular RD: Standard recurring deposit
- Senior Citizen RD: Higher interest rates
- Flexi RD: Flexible monthly deposits
Advantages of RD
- Encourages disciplined savings
- Low risk investment
- No need for a large initial amount
- Guaranteed returns
Disadvantages of RD
- Lower returns compared to equity investments
- Penalty for missed payments
- Interest is taxable
Tax on RD
Interest earned on RD is taxable as per your income tax slab. Banks may deduct TDS if interest exceeds the prescribed limit.
Who Should Invest in RD?
- Salaried individuals
- Students starting savings
- People without a lump sum amount
Frequently Asked Questions
What is RD in simple words?
RD is a savings plan where you deposit money every month and earn interest.
Is RD safe?
Yes, RD is a safe investment offered by banks.
Can I skip RD payment?
Missing payments may result in penalties depending on the bank.
Which is better RD or FD?
RD is better for monthly savings, while FD is better for lump sum investment.
About this Calculator
Learn what Recurring Deposit (RD) is, how it works, interest rates, benefits, calculation formula, and examples. Beginner-friendly guide.