Money Basics · Banks, FDs & savings

Recurring deposits

A Recurring Deposit (RD) is like a SIP for bank deposits. You commit to depositing a fixed amount every month, and the bank pays you FD-equivalent interest on each installment.

How RDs work

• Choose a monthly amount (minimum ₹100 at most banks)
• Choose a tenure (6 months to 10 years)
• The bank auto-debits your account on a fixed date each month
• At maturity, you receive all deposits + accumulated interest

6–7%Typical RD interest rate, same as FD at most banks

RD vs SIP: what's the difference?

They look similar. Both involve monthly contributions. But they're fundamentally different.

• RD: bank deposit. Guaranteed return. Zero market risk.
• SIP (mutual fund): market-linked. Variable return. Higher potential, higher risk.

RD is for money you cannot afford to lose. SIP is for money you want to grow long-term.

> Use RD for your car down payment in 2 years. Use SIP for your retirement in 25 years.

Tax treatment

Same as FD. Interest is added to income and taxed at your slab rate. TDS applies if interest exceeds ₹50,000/year across all your deposits at one bank.

Premature closure

You can close an RD early, but most banks charge a 0.5–1% penalty on the rate. So a 7% RD becomes effective 6% if broken early. Plan for your actual timeline.

When RDs make sense

• Saving for a specific short-term goal: laptop in 1 year, vacation in 2 years
• Building the habit of monthly saving before moving to SIPs
• Capital you cannot risk: home loan down payment, college fees

For anything beyond 3 years, equity mutual funds have historically done better post-tax. Debt funds no longer help here, since April 2023 their gains are taxed at your slab rate, exactly like RD interest.

Every word of this chapter rests on one assumption: that the bank is still standing on maturity day. Worth knowing exactly what protects you if it isn't.

Takeaway. RDs are monthly bank deposits with guaranteed FD-level returns. Use them for short-term goals where capital safety is non-negotiable.