Best Recurring Deposit
Schemes in India 2026
Bank vs post office RD rates compared, interest tax rules, premature withdrawal penalties, and how to calculate your exact maturity amount.
What Is a Recurring Deposit?
A recurring deposit (RD) is a term deposit product where you commit to depositing a fixed amount every month for a chosen tenure — typically 6 months to 10 years. The bank or post office pays a fixed interest rate, compounded quarterly, and returns the total corpus (deposits plus interest) at maturity. RDs bridge the gap between savings accounts (low interest, high liquidity) and fixed deposits (higher interest, lump sum required) — making them ideal for salaried individuals who want to build a corpus from monthly income.
How RD Interest Is Calculated
RD interest is calculated using the compound interest formula applied to each monthly instalment for its respective tenure in the RD. Since each instalment earns interest for a different number of months, the total maturity amount is the sum of each instalment’s future value. Most banks compound RD interest quarterly.
The formula: M = R x [(1 + i)^n – 1] / (1 – (1+i)^(-1/3)), where M = maturity amount, R = monthly instalment, i = quarterly interest rate, n = total quarters. Use the RD Calculator to compute exact maturity amounts instantly without manual calculation.
Best RD Interest Rates in India 2026
| Bank / Institution | 1-Year RD Rate | 2-Year RD Rate | 3-Year RD Rate | Senior Citizen Rate |
|---|---|---|---|---|
| Unity Small Finance Bank | 9.00% | 9.00% | 8.50% | +0.50% |
| Suryoday Small Finance Bank | 8.60% | 8.25% | 8.10% | +0.50% |
| Ujjivan Small Finance Bank | 8.25% | 8.00% | 7.75% | +0.25% |
| IDFC First Bank | 7.75% | 7.50% | 7.25% | +0.50% |
| Axis Bank | 7.20% | 7.10% | 7.00% | +0.50% |
| HDFC Bank | 7.00% | 7.00% | 7.00% | +0.50% |
| ICICI Bank | 7.00% | 7.00% | 7.00% | +0.50% |
| SBI | 6.80% | 7.00% | 6.75% | +0.50% |
| Post Office RD | — | — | — | 6.70% (5-year fixed) |
Rates as of mid-2026. Always verify current rates on the bank website before opening an RD — rates change with RBI policy decisions.
Post Office RD — The Sovereign-Guaranteed Option
Post Office Recurring Deposit has a fixed 5-year tenure and currently offers 6.7% interest per annum, compounded quarterly. Key features: minimum deposit Rs 100/month, no maximum limit, backed by sovereign guarantee of Government of India (not just DICGC Rs 5 lakh limit), and can be opened at any post office branch or through India Post Payments Bank.
Post Office RD is ideal for conservative investors placing large sums (above Rs 5 lakh) who want complete safety, and for investors in remote areas with limited bank access. The fixed 5-year tenure is a drawback for those needing shorter-duration deposits.
RD vs FD vs SIP — Which Should You Choose?
| Parameter | Recurring Deposit | Fixed Deposit | SIP (Equity MF) |
|---|---|---|---|
| Investment Mode | Monthly fixed amount | One-time lump sum | Monthly fixed amount |
| Returns | 6.7-9% fixed | 6.8-9.5% fixed | 10-14% variable (historical) |
| Risk | Very low | Very low | Market risk (medium-high) |
| Liquidity | Premature exit with penalty | Premature exit with penalty | High (open-ended funds) |
| Tax on Returns | Slab rate | Slab rate | LTCG 12.5% after 1 year |
| Inflation Beating | Marginal (real return ~1-3%) | Marginal (real return ~1-3%) | Yes (real return ~6-8%) |
| Best For | Short-term goals, low-risk savers | Lump sum deployment, capital safety | Long-term wealth creation (5+ years) |
Tax on RD Interest — Complete Rules
Interest earned on RD is taxable as income from other sources at your applicable slab rate — regardless of tenure or bank type. Key rules:
- TDS at 10% applies if aggregate interest from all RDs and FDs at one bank exceeds Rs 40,000/year (Rs 50,000 for senior citizens)
- TDS is deducted at 20% if PAN is not submitted to the bank
- Submit Form 15G (below 60 years, income below taxable limit) or Form 15H (senior citizens) to avoid TDS if tax liability is nil
- Interest must be reported in ITR every year as it accrues — not just at maturity
- For multi-year RDs, the accrued interest each year must be declared in that year’s ITR even though you receive it only at maturity
RD for Specific Goals — Practical Examples
| Goal | Timeline | Monthly RD | Expected Maturity (at 7.5%) |
|---|---|---|---|
| Emergency fund (Rs 3 lakh) | 2 years | Rs 11,500 | ~Rs 3 lakh |
| Vacation fund (Rs 1 lakh) | 1 year | Rs 8,000 | ~Rs 1 lakh |
| Down payment savings (Rs 5 lakh) | 3 years | Rs 13,000 | ~Rs 5.1 lakh |
| Children education (Rs 10 lakh) | 5 years | Rs 16,500 | ~Rs 10.2 lakh |
Key Advantages and Limitations of RD
Advantages: Disciplined savings habit enforced by fixed monthly commitment; guaranteed returns with no market risk; DICGC insurance for up to Rs 5 lakh; can be used as loan collateral; suitable for specific short and medium-term financial goals.
Limitations: Returns are taxable at slab rate, reducing real post-tax yield; do not beat inflation over the long term; premature closure attracts penalty; no partial withdrawal — must break the entire RD if funds needed; interest rates fall when RBI cuts repo rate.
RD Opening Checklist
- Compare rates across at least 3 banks and post office before opening
- Check small finance bank DICGC insurance coverage — keep amount under Rs 5 lakh per bank
- Submit PAN to bank to ensure TDS at 10% (not 20%)
- Submit Form 15G/15H if your income is below taxable limit to avoid TDS entirely
- Set up auto-debit mandate on your salary account to ensure monthly RD instalments are never missed
- Declare RD interest each year in your ITR under income from other sources
- Use the RD Calculator to verify expected maturity before committing
🧮 Free Calculators — Use Them Now
No login required. Updated for FY 2025-26.
Frequently Asked Questions
A recurring deposit (RD) is a savings instrument offered by banks and post offices that allows you to deposit a fixed amount every month for a pre-determined tenure, earning interest at a fixed rate. At maturity, you receive the total deposits plus compounded interest. RDs are ideal for people who cannot invest a lump sum but want to save regularly. Interest is compounded quarterly in most bank RDs. The minimum monthly deposit is typically Rs 100 for post office RD and Rs 500-1,000 for bank RDs.
As of 2026, small finance banks offer the highest RD rates of 8-9% per annum for 1-2 year tenures. Among major scheduled banks, rates range from 6.5-7.5%. Post Office RD offers 6.7% per annum compounded quarterly for a fixed 5-year tenure. Senior citizens get an additional 0.25-0.50% over standard rates at most banks. Interest rates change periodically — always check the bank website for current rates before opening an RD. Tax on RD interest applies at your slab rate and TDS is deducted if annual interest exceeds Rs 40,000 (Rs 50,000 for senior citizens).
Yes, interest earned on recurring deposits is fully taxable as income from other sources at your applicable income tax slab rate. TDS at 10% is deducted if your total interest income from RDs and FDs at a single bank exceeds Rs 40,000 in a financial year (Rs 50,000 for senior citizens). If you are in the nil or 5% tax bracket, submit Form 15G (individuals) or Form 15H (senior citizens) to the bank to avoid TDS. Report all RD interest in your ITR even if TDS is not deducted.
An FD (Fixed Deposit) requires a one-time lump sum investment and earns interest over the tenure. An RD requires monthly deposits of a fixed amount and builds a corpus gradually through regular saving. FD offers slightly higher interest rates (0.25-0.5% more) than RD at the same bank. FD suits investors with an existing lump sum; RD suits those who want to save monthly from salary. Both are equally safe, insured up to Rs 5 lakh by DICGC, and taxed identically on interest earned.
Yes, premature withdrawal of RD is permitted at most banks and post offices, but with a penalty. Typically, the penalty is a 0.5-1% reduction in the applicable interest rate for the completed tenure. Post Office RD allows premature closure only after 3 years of completion. Some banks offer sweep-in facilities on RDs, but the core RD itself cannot be partially withdrawn — only full premature closure is available. RDs can be used as collateral for loans (typically up to 90-95% of RD value) without breaking the deposit.
Post Office RD (5-year tenure at 6.7%) is backed by the sovereign guarantee of the Government of India, making it the safest RD option. Bank RDs offer more flexibility in tenure (6 months to 10 years) and may offer higher rates (especially at small finance banks). DICGC insures bank deposits up to Rs 5 lakh per bank. For amounts under Rs 5 lakh, a high-rate small finance bank RD may offer better returns than Post Office RD. For amounts above Rs 5 lakh or for maximum safety regardless of rate, Post Office RD is preferred. Seniors should compare both before deciding.