What is a Recurring Deposit (RD)?
A Recurring Deposit (RD) is a disciplined savings instrument where you deposit a fixed amount every month for a predetermined period, earning interest that compounds over the tenure. Unlike FDs (where you invest a lump sum), RDs allow you to build savings systematically from your monthly income — making them the ideal savings tool for salaried individuals, students, and first-time investors.
The Post Office RD is one of the most popular government-backed schemes in India, offering 6.7% p.a. with quarterly compounding for FY 2026-27. This rate, confirmed by the Ministry of Finance on March 30, 2026, remains stable and competitive against bank RDs.
RD Interest Rates 2026 — Bank Comparison
| Institution | RD Rate (5-yr) | Senior Citizen Benefit | Min. Monthly Deposit |
|---|---|---|---|
| Post Office RD | 6.7% (quarterly) | Same rate (no extra) | ₹100 |
| SBI | ~6.5% | +0.50% (~7.0%) | ₹100 |
| HDFC Bank | ~6.7% | +0.50% (~7.2%) | ₹1,000 |
| ICICI Bank | ~6.5% | +0.50% (~7.0%) | ₹500 |
| Small Finance Banks | 7.5–8.0% | +0.25–0.50% | ₹500 |
RD Maturity Examples at 6.7% (Post Office 2026)
| Monthly Deposit | Tenure | Total Invested | Maturity Amount | Interest Earned |
|---|---|---|---|---|
| ₹1,000 | 5 years | ₹60,000 | ₹71,330 | ₹11,330 |
| ₹3,000 | 5 years | ₹1,80,000 | ₹2,13,990 | ₹33,990 |
| ₹5,000 | 5 years | ₹3,00,000 | ₹3,56,650 | ₹56,650 |
| ₹10,000 | 5 years | ₹6,00,000 | ₹7,13,300 | ₹1,13,300 |
RD vs SIP — Which is Better for Monthly Savings?
| Feature | RD | SIP (Mutual Fund) |
|---|---|---|
| Returns | Fixed 6.5–8% (guaranteed) | Market-linked 10–15% (historical) |
| Risk | Zero — principal guaranteed | Market risk — can lose in short term |
| Liquidity | Moderate (premature penalty after 3yr) | High (redeem anytime for equity) |
| Tax | Interest taxable per slab | LTCG 12.5% (equity, after ₹1.25L) |
| Ideal for | Short-term goals (1–5 yrs), emergency corpus | Long-term wealth (7+ years) |
Verdict: For a 1–3 year goal (vacation, gadget, down payment), RD is better — guaranteed, no risk. For a 7+ year goal (retirement, child education), SIP in equity mutual funds historically beats RD by 5–8% CAGR. Many investors maintain both: RD for stability and short goals, SIP for long-term wealth creation.
Post Office RD — Special Rules You Must Know
- Default penalty: If you miss a monthly deposit, a penalty of ₹1 per ₹100 (1%) per month is charged on the defaulted amount. After 4 consecutive defaults, the account becomes inactive.
- Premature closure: Allowed only after 3 years from opening. Interest paid at the applicable savings account rate (not RD rate) on premature closure — a significant penalty. Plan your RD only for amounts you won't need for 3+ years.
- Loan against RD: After 12 instalments, you can take a loan up to 50% of the RD balance at a rate 2% above the RD rate. Useful for short-term cash needs without breaking the RD.
- 80C deduction: Post Office RD does NOT qualify for Section 80C deduction (unlike Post Office 5-year Time Deposit). Interest is taxable as "income from other sources."
- Minor's account: Children above 10 years can open and operate a Post Office RD in their own name. Below 10, a parent/guardian operates it.