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Recurring Deposit (RD): Meaning, Features and How It Works?

Learn what a recurring deposit is, how RD accounts work, key features, interest, tax treatment, and when it suits disciplined short-term savings goals

Written by : Knowledge Centre Team

2025-08-02

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7 minutes read

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Recurring Deposits, or RDs, are a well-liked and reputable investment strategy among people of all ages. The question now is, what exactly is a Recurring Deposit account? Recurring Deposits, often known as RDs, are special term deposits provided by Indian banks. It is a mechanism for investing that enables people to set aside money regularly and receive respectable returns.

In India, most banks and NBFCs provide Recurring Deposit accounts with terms ranging from six months to ten years.

Key Takeaways

  • Recurring Deposits are perfect for salaried individuals looking for a way to save money regularly in a disciplined manner. 
  • Unlike market-linked investments, you can rely on RDs for fixed and predictable returns, which, in turn, offer stability and security.
  • You can choose a tenure from 6 months to 10 years based on your financial goals.
  • RDs come in several categories, some of which exist specifically for senior citizens, minors, and NRIs.
  • Other options like ULIPs and savings plans are similar to RD but offer better tax benefits and growth potential.

How does a Recurring Deposit Work?

Like FDs, recurring deposits allow you to make regular investments in fixed amounts, such as ₹1000 per month. This deposit matures on a specific day in the future.

For example, you start an RD for 60 months (5 years) and will deposit ₹1000 p.m. If the RD pays an interest of 6% p.a. you will receive about ₹70,000 five years later while you only deposited ₹60,000.

As a result, consumers have the chance to increase their earnings through repeated monthly contributions of a predetermined value over a fixed length of time thanks to Recurring Deposit plans. An RD might last anywhere from 6 months and 10 years.

Features & Benefits of a Recurring Deposit

When you invest money with RD, you receive a constant interest rate on that sum at a set frequency till the term expires. The balance owed at maturity (your invested money) and any unpaid or accrued interest are reimbursed after the period. Let’s discuss a few features of Recurring Deposits:

  • Fixed Income Returns: It offers a return that is assured at maturation. When one invests their money in an RD, they are already aware of the interest rate. Furthermore, throughout the investment, the interest rates remain unchanged.
  • Lowest Investment Amount: The best part about RDs is that you don’t need a huge amount of money to begin your investment journey. With a sum as low as ₹100, you are all set to invest in RDs. This can come in handy if you have a substantial surplus from your salary that you wish to invest.
    Must Read - Income from Salary
  • Flexible Period: An individual has the option of opening a Recurring Deposit account for at least six months to ten years in the future. Recurring Deposit, or RD for short, allows you the freedom to select the timespan that works best for you.
  • High-Interest Rates: Recurring Deposits have better interest rates than standard savings accounts. The interest is typically compounded by banks every quarter.
  • Lock-in Period: The length of the lock-in period for a Recurring Deposit account might range anywhere from 30 to 90 days, depending on the preferences of the service provider. You won't earn interest on any withdrawals you make during the lock-in period.
  • Pre-mature Pay Outs: In the case of a Recurring Deposit, consumers are permitted to make early withdrawals, although a fee will be assessed.
  • Lending Facility: You can use loans or overdraft services in exchange for a regular deposit. The funds accessible in the RD account are used to offset loan default costs.

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Types of Recurring Deposits in India

People from all walks of life, regardless of their financial needs and demographics, opt for RD for one reason- it offers an opportunity to learn disciplined savings. Whether you are a salaried employee, retired personnel, an NRI, or a family man, there is an RD account tailored to your requirement. Some of the common types of RD accounts are as follows:

  • Regular RD Accounts: These are the accounts open to all individuals who are looking for a way to save money in a disciplined manner. It has a fixed monthly deposit structure. 
  • Senior Citizen RD (Higher interest rates): If you are a senior citizen, you can enjoy the benefits of higher interest rates on Recurring Deposit accounts. It allows you to earn better returns on your savings. 
  • Minor RD Accounts (For children’s savings): You can open an RD account for your little ones to ensure their secure financial future. Parents or guardians can do this to encourage their children to save early. 
  • NRI/NRE Recurring Deposits: Even if you do not live in the country and have a Non-Resident Indian (NRI) and Non-Resident External (NRE) account, you can open an RD. It can be a good way to benefit from competitive interest rates while investing your earnings in India. 
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Did You Know?

Investing ₹5,000 monthly in an RD at 6.5% interest can grow to over₹3.5 lakhs in 5 years, being safe, stable, and hassle-free!


Source: ClearTax

Young Term Plan

Things to Check Before Investing in RD

Let's examine the variables to consider before investing in the Recurrent Deposits. Before you create an RD account, you must take into consideration the following things: -

  • Investment Size: The bare minimum to open a regular deposit account is one hundred rupees. A Recurrent Deposit is a practical investment strategy since it doesn't need a sizable initial commitment. Before starting an RD, calculating your investment capital is a crucial element to consider.
  • Duration: A Recurring Deposit can be made for a duration of between six months and ten years. Once an RD account is opened, the duration cannot be changed until the RD matures. To get the best results, be sure to select the tenure according to your needs.
  • Rate of Interest: A monthly interest payment is made on your investment. The interest rates might differ from one bank to another. Therefore, it is wise to select the Recurring Deposit option that provides the highest rate of interest for your money.

How to Open a RD Account?

You have the liberty to initiate your RD account via both online and offline outlets. Below we will discuss the steps you will need to take to achieve the same.

Online Method:

  1. To begin, access your online bank account.
  2. After that, choose "Open an e-RD Account."
  3. Specify the capital investment, the period, and the bank account from where you want to transfer the money. Verify the interest rate that applies and select the name for the RD account.
  4. Select the maturation sum and then affirm that you accept all the conditions of the agreement.
  5. Complete the application at the end. The RD receipt will be sent to you through email and messaging.

Offline Method:

  1. To access your savings account, you must go to the closest bank location.
  2. Then, you must provide the investment amount, payment method, term, nominee, and other relevant information on the RD application form.
  3. Settle the first instalment's balance in currency or by cheque.
  4. Your application will be processed by the financial institution in the allotted period.

Documents Required to Open a Recurring Deposit Account

To open an RD account, you will be required to provide some documents to verify your identity, address, and other financial information. These documents ensure compliance with banking regulations and help the authorities establish your authenticity. Mentioned below are the needed particulars: 

  • Identity Proof: Aadhaar card, passport, voter ID, driving license, etc.
  • Address Proof: Utility bill, passport, Aadhaar card, ration card, etc. 
  • PAN Card: For tax-related compliance.
  • Passport-size Photographs: Recent photographs for identification.
  • Bank Account Details: An active savings account linked to the RD account.

Who can Invest in an RD?

Recurring Deposits, or RDs for short, are eligible for opening at both banks and post offices with the same set of requirements. To start an RD account, you will need to have an existing savings account first. A list of legal entities that can open RD accounts follows:

  • Owner of a personal savings account
  • Minors above the age of 10
  • Minors under natural or legal supervision under the age of ten
  • A corporation, business, sole proprietorship, or entrepreneurial entity
  • Government institution
 

Other Investments Similar to RD

RDs are, no doubt, simple to follow and understand. However, it is not the only one, especially when you are looking at higher investment, growth and tax benefits. The following investments are comparable, and often beat RD in certain benefits:

Limited Pay Savings Plans:

Life insurance savings plans have been a popular choice of investment for those seeking preservation goals for their wealth. These plans simply offer a guaranteed maturity value and bonuses along with the following benefits:

  • Tax savings on invested money
  • Tax-free maturity value
  • Better growth
  • Limited pay option, i.e., you can pay the premiums for a 10-year plan in 5 years
  • Life cover throughout the policy term

 

Unit Linked Insurance Plans (ULIPs)

ULIPs are versatile investments that allow you to invest in diversified portfolios of your choice of asset classes. With ULIPs you can:

  • Invest in a portfolio of equity and debt funds
  • Invest for a minimum of five years and a maximum of up to 99 years (ULIP from Canara HSBC Life Insurance)
  • Bonus additions for long-term investors
  • Life cover throughout the policy term
  • Premium protection option to safeguard maturity value for important life goals like child’s education
  • Partial withdrawals are available after five years in the plan
  • Withdrawals, as well as maturity values, are tax-exempt in ULIPs

Diversified Debt Mutual Funds

Diversified debt mutual funds are one of the most flexible investment options available. You can invest in monthly SIP mode which is very similar to an RD. However, unlike RD, the mutual fund will not penalise your portfolio if you stop the deposits before your intended investment term.

Also, your investments will be treated as a long-term capital asset in the fund after three years. Thus, while withdrawing you can avail the benefit of indexation on the gains.

If you are earning monthly, investing monthly is your best and fastest option to build wealth. Most banks provide the RD service, which allows customers to deposit money consistently and receive satisfactory returns. You can invest a fixed amount every month and build wealth with the simplicity of recurring deposits (RD). However, do keep an option open for other more tax-efficient investments.

People typically benefit from the increased flexibility and convenience of making investments made possible by the presence of an interest component in addition to the regular deposit element.

Conclusion

A recurring deposit is a smart savings tool for anyone who wants guaranteed returns with minimal risk. It helps you learn routine savings and plan for future expenses, your children’s education, and even retirement. An RD is a simple and effective investment scheme for all. There are other alternatives too, with a similar structure but additional benefits. These options are not just for savings but also for life cover and tax benefits. For example, the Savings Plan by Canara HSBC Life Insurance comes with a wealth preservation opportunity, guaranteed returns, and added protection for your loved ones. This can also be a great alternative to a traditional savings tool.

Glossary

  1. Recurring Deposit (RD): A savings scheme where you deposit a fixed amount every month for a predetermined period to earn interest.
  2. Maturity Value: The total amount you receive at the end of the RD tenure. It includes principal and interest.
  3. Lock-In period: The initial period of a scheme in which withdrawals are restricted or not permitted.
  4. Overdraft Facility: It allows you to withdraw more than your account balance, up to an approved limit, with interest charged.
  5. Compounded Interest: The interest calculated on the initial principal and the accumulated interest from previous periods.
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Uncertain About Insurance

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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