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What is Recurring Deposit? - Know About the Features and Benefits of RD ACC

What is Recurring Deposit? - Know About the Features and Benefits of RD ACC

Building a savings and investment habit takes time and patience and a financial instrument that allows regular investments to build the habit. A recurring deposit is one such financial instrument which allows you to save a certain amount periodically and also helps in reducing the risk associated with your investment portfolio.

In this article, you will read about different aspects of recurring deposits and the benefits of opening an RD account and a lot of other information pertaining to the scheme.

What is a Recurring Deposit?

Recurring deposit as the name suggests is a saving and investment scheme where the account holder needs to deposit a certain amount at regular intervals, suppose monthly or quarterly. Recurring deposits come with a tenure ranging from six months to ten years and the account holder can choose the tenure as per their financial goals and preferences and also the amount they want to invest in the RD account. Usually, the minimum investment required is Rs. 100 per month, and you can choose any amount equal to or above Rs.100 for monthly deposits but it should be in multiples of Rs.10.

Recurring deposits are risk-free investment options offered by banks, NBFCs, and post-offices and the interest rate on these deposits varies as per government regulations. At present, the interest rate on RD is around 5.8% (Post office RD interest rate). On RD, the interest is calculated every quarter. The name recurring is derived from the compound interest that is generated on these deposits with the help of RD calculator.

How Does a Recurring Deposit Account Work?

To understand what is rd in a better way, let’s dig a little deeper. For you to start with recurring deposits, you need to open a recurring deposit account with any bank, post office or other financial services which offers recurring deposits.

Now once you open the account, you start depositing a sum every month which gets accumulated in that account. Now, in every quarter, you earn interest on the accumulated sum of money in that RD account which gets reinvested and again in the next quarter you earn interest on the total deposited amount plus the interest accumulated. This process goes on until the account matures. Talking about the maturity of the account, you can choose a tenure between six months and ten years for the account.

For instance, you have opened a recurring deposit account as of 1.1.2023 and you are investing Rs. 500 every month. So on 31.03.2023, the amount accumulated in your account will be Rs. 500*3 = Rs. 1500 and let’s say you are 6% interest on the deposit, so as of 31.03.2023, the total amount in the account will be Rs. 1590, Rs. 90 being the interest earned. Now you deposit Rs. 500 for another 3 months and as of 30.6.2023, the total amount in the account will be Rs. 500*3 = Rs. 1500 plus Rs. 1590, then the total is Rs. 3090. Now on 30.06.2023, you will earn interest on this accumulated amount of Rs. 3090 and the total amount in your RD account will be Rs. 3275.4 and Rs. 185.4 is the interest earned for the quarter. This continues until the maturity of the RD account or until you withdraw and close the account, whichever is earlier.

Features of Recurring Deposit Account

Now, let’s take a closer look at the features of recurring deposits –

Risk-free fixed-income investment

If you are looking for a fixed-income instrument which has no risk involved, then recurring deposits can be one of the best options you can have. Since recurring deposits are not linked to the market, it doesn’t possess any market risk and the returns are guaranteed.

Simple and easy

Recurring deposits are one of the easy-to-invest instruments where you just need to choose a bank/ financial service provider where you want to open the recurring deposit account. Then you need to choose the amount that you will invest monthly and the tenure. There is no need for any analysis or monitoring of this investment.

Flexible deposits and tenure

You can even start investing in an RD account with just Rs. 100 and the maximum deposits can be any amount in the multiples of Rs. 10. So, there is no need to worry if you have less disposable income at present. Moreover, you can choose the tenure which suits your financial goals the best. You can choose any tenure ranging from six months which is the minimum and to ten years, the maximum. Moreover, the lock-in period for recurring deposits is negligible and it is at the discretion of the bank/ post office where you have your RD account. It usually ranges between 30 days to 3 months and during this period, you won’t earn any interest if you make withdrawals.

Regular interest earnings

Recurring deposits have fixed interest rates attached to them. When you start an RD account, you can see how much interest you are going to earn, however, this is subject to change if the repo rate changes. The interest is compounded quarterly on the RD account and thus offers a regular source of income generation.


Withdrawals from your RD account are allowed at any point in time. However, if you are making premature withdrawals then certain penalties can be levied.

Loan against RD

You can even avail loan against your recurring deposits like against mutual funds or fixed deposits. The loan amount can be adjusted against the funds in the recurring deposit account.

How to Setup an RD account?

You can open a recurring deposit account both online and offline. Here in this section, we are going to talk about both the process and you can choose the convenient one as per your preferences.

Online process of setting up RD account

  • You need to login to your bank account from your bank’s mobile app or website
  • There you will find a recurring deposit account opening option
  • Click on the option and the form will pop up which you need to fill to open the RD account
  • You need to select the bank account from which the amount will be debited every month for the recurring deposit account.
  • Enter the tenure for which you want to run the RD account
  • Check the interest rate which applies to your RD account.
  • You can also check the maturity amount by changing the tenure and amount you want to deposit.
  • Confirm all the details and read the terms and conditions and then submit the form.
  • You will receive an email on your registered email id for the confirmation of account opening.

Offline process of RD Account opening

  • You can visit the nearest post office or bank where you want to open the recurring deposit account.
  • Get the RD account opening form and fill it up with the necessary details such as the amount you want to invest, mode of payment, tenure of investment and nominee details if any.
  • You need to pay the first instalment with cash or cheque
  • Then the application will be reviewed by the bank/ post office officials and you will get the confirmation after the verification and approval.

Who Can Invest in a Recurring Deposit?

For opening a recurring deposit account, you need to be –

  • Individuals above the age of 10 years. Yes, minors can also have RD account
  • If the applicant is below the age of ten years, then their legal guardian can open the account on their behalf.
  • Any government organisation can open an RD account, also any company, partnership firm, proprietary organisation and corporates too.
  • However, you need to have a savings account with the financial service provider with whom you are opening the RD account.

Documents Required to Open an RD Account

The documents that you will require to submit while opening the RD account are as follows –

  • Application form opening RD account
  • Address and Identity proofs
  • Photographs which need to be of Passport size
  • Other documents for the KYC process as asked by the financial service provider.


So, recurring deposits can be a great way to inculcate savings and investment habits in anyone who is starting his or her investment journey. Moreover, the flexibility one can get with recurring deposit accounts is something noteworthy. It helps people achieve their financial goals easily without putting in much thought.

Disclaimer :

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’

The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.

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Frequently Asked Questions (FAQs)

What is the interest rate on recurring deposits?

The interest rate on recurring deposits varies from one financial services provider to another. However, the base interest rate is controlled by the government as it is linked to the repo rate.

Is the interest earned from recurring deposits taxable?

Yes, the interest you earn on your recurring deposits is taxable.

Can I open Recurring deposits for my 5-year-old son?

Yes, you can open a recurring deposit account for your 5-year-old child by providing your details and documents.