How is RD interest calculated?
In a recurring deposit you put the same amount in every month. Banks and the post office compound RD interest every quarter. Each monthly instalment earns interest for the time it stays in the account, so the first instalment earns the most.
Worked example
Post office RD at a glance
- The post office RD runs for 5 years, with the option to extend for another 5.
- The rate for October to December 2026 is 6.7% a year, compounded quarterly. The rate you start with stays fixed for the whole term.
- The minimum deposit is ₹100 a month, in multiples of ₹10, with no upper limit.
- You can take a loan of up to 50% of the balance after 12 instalments.
Tax on RD interest
RD interest is taxed at your slab rate, the same as FD interest. Banks deduct TDS if your total interest from that bank goes over ₹50,000 in a year, or ₹1,00,000 for senior citizens.
Frequently asked questions
RD or SIP: which is better?
An RD gives a fixed, guaranteed return, which suits short-term goals and people who don't want risk. A SIP in an equity mutual fund can grow much more over 5 years or longer, but its value goes up and down with the market.
What happens if I miss an RD instalment?
Most banks charge a small penalty for a late instalment. At the post office, the default fee is ₹1 for every ₹100 per month missed. If you miss several in a row, the account may be closed.
Can I close an RD early?
Yes, but you usually get a lower rate, and banks may charge a penalty. A post office RD can be closed early after 3 years, with interest at the savings account rate.
Why does my bank show a slightly different maturity amount?
Banks round interest at each quarter and may count days slightly differently. The difference is usually only a few rupees.