How Recurring Deposit (RD) Interest is Calculated

A Recurring Deposit is the “SIP for bank deposits.” You put away a fixed amount every month, the bank compounds interest quarterly, and you get a lump sum at maturity. It’s the simplest tool for building a savings habit.

How it works

Each monthly installment earns compound interest from its deposit date until maturity. The first month’s ₹5,000 earns interest for the full tenure; the last month’s ₹5,000 earns interest for just one month.

The formula

The maturity value is the sum of each installment compounded for its remaining duration:

Maturity = Σ [P × (1 + r/n)^(n × t_i)]

Where t_i = remaining months for installment i, converted to years
n = 4 (quarterly compounding)

Worked example

₹5,000/month, 7% rate, 3 years (36 months):

• Month 1 deposit compounds for 36 months (3 years)
• Month 2 deposit compounds for 35 months (2.917 years)
• …
• Month 36 deposit compounds for 1 month (0.083 years)

Total invested: ₹5,000 × 36 = ₹1,80,000
Approximate maturity: ₹2,00,580
Interest earned: ~₹20,580

RD vs FD — when to use which

Feature	RD	FD
Investment	Monthly fixed amount	One-time lump sum
Best for	Salaried savers, goal-based saving	Parking surplus cash
Returns	Slightly lower (staggered deposits)	Slightly higher (full amount earns from day 1)
Flexibility	Fixed installment	Choose any amount

Tips for RD savers

• Auto-debit — Link to salary account so you never miss a month
• Match tenure to goals — 12 months for vacation fund, 36 for car down payment
• Don’t break early — Penalty rates reduce returns significantly
• Compare post-office vs bank — Post office RD rates are sometimes higher

Calculate your RD maturity with the OurDailyCalc RD calculator.

TL;DR

• RD = monthly savings compounded quarterly until maturity
• Each installment earns interest for its remaining duration
• Lower returns than FD (staggered deposits) but builds saving discipline
• Best for salaried people with a specific savings goal