Understanding Recurring Deposit Interest Rates

A recurring deposit or RD is a type of term deposit which allows investors to make regular deposits and earn guaranteed returns on their investments. While FD and RD interest rates are fixed and both investments provide assured returns to investors, there is one key difference. While a FD involves a single lump sum investment, a RD involves multiple usually monthly investments made over the account tenure. Currently the minimum and maximum investment period of a recurring deposit in India are 6 months and 10 years, respectively.

RD is ideal for inculcating a regular saving habit and it provides decent returns to the investor. This is the key reason why RD is considered as an ideal saving cum investment instrument for small investors. RD provides you returns at a pre-defined RD interest rate at the end of the tenure of the investment. At the end of your RD tenure, you are paid your initial invested capital back along with the interest you have earned from the RD.

When opting for an investment in an RD, it is imperative that you know the RD interest rate as well as the RD interest calculation formula. It will help you determine the RD maturity amount you will be able to avail at the end of your investment tenure. The RD interest calculation formula is as follows:

Now that you are acquainted with what an RD account is, how RD works, and how to calculate RD interest rates, it is important to have a brief about the types of RD accounts to get a better understand of the topic. Some basic types of RD accounts available in India are:

Before you consider opening an RD account, you should be aware of some primary factors that may affect your recurring deposit interest rates.

Recurring Deposits are subject to Tax Deducted at Source (TDS). If the interest earned on FD AND RD exceeds INR 40,000 in a FY per Customer ID, TDS would be applied at 10% and would be directly deducted by the bank. One will be obligated to pay Income Tax on the interest earned from a Recurring Deposit according to the rate of the tax slab of the RD holder. If you fall into the no-tax limit income bracket, then it is advisable to submit Form 15G/15H to the bank so that you are exempted from any tax deductions.

Also, it is essential to note that the Tax Deducted at Source (TDS) will be applicable at the rate of 20% if you have not furnished your PAN information. The Tax Deducted at Source (TDS) may also vary depending on your annual income, your age bracket, and the amount of interest that you accrue on your Recurring Deposit (RD).