A recurring deposit (RD) is a deposit account where you pay a fixed amount every month for a chosen term. Each instalment earns the contracted rate for the time it remains in the account, and at maturity you receive the deposits plus interest. Ordinary RD deposits do not qualify for Section 80C, and the interest is generally taxable. A National Savings Recurring Deposit Account at India Post runs for five years; its current rate and effective period are shown below.
An RD is the mirror image of a fixed deposit. Where an FD parks one lump sum, an RD builds a lump sum from a monthly habit, useful when you have steady income but no large amount to set aside at once.
Recurring deposit at a glance
Post Office Recurring Deposit – 5 years, current rate
6.7% p.a.
Applies to deposits for 1 October 2026 to 31 December 2026 (Q3 FY 2026-27).
Compounded quarterly and added to your balance.
The Ministry of Finance reviews small savings rates every quarter and notifies them shortly before the quarter begins. A rate change applies to new deposits; SCSS, NSC, KVP and Post Office time deposits keep the rate fixed for the whole term once you have invested, while PPF and SSY balances earn whatever the current rate is each year.
Source: Department of Economic Affairs, Ministry of Finance – small-savings notification archive (Q3 FY 2026-27 rates). Verified 2026-10-24.
How does a recurring deposit work?
You pick a monthly amount and a term, and pay that instalment every month. Each instalment joins the balance and starts earning the rate fixed at opening, so your earliest deposits compound the longest. Interest is usually compounded quarterly. At the end of the term you receive the total of all instalments plus the accumulated interest.
The rate is set when you open the RD and does not change for its term, even if market rates fall afterward. That is the appeal: certainty about what a fixed monthly saving will grow into.
Bank RD or post office RD?
Both work the same way; the differences are in term and rate-setting.
| Feature | Bank RD | Post office RD |
|---|---|---|
| Tenure | Varies by bank and product | Fixed 5 years |
| Rate set by | Each bank | Government, revised quarterly |
| Current rate | Check the bank's current deposit card | See the dated rate card above |
A bank RD gives you flexibility on tenure and is convenient if you already bank there. The post office RD is a single five-year product at a government-set rate, part of the wider post office savings schemes. Neither is inherently better; they suit different preferences on term and access.
How is RD interest taxed?
RD interest is generally added to your income and taxed under the applicable rules, with no Section 80C deduction on the deposits. Banks may deduct TDS once the relevant interest threshold and conditions are met. TDS is not the final tax: report the taxable interest in the relevant return and claim credit for tax already deducted. Thresholds and filing rules can change, so confirm the position for the relevant tax year.
There is one relief worth knowing. Under Section 80TTB, a senior citizen can deduct up to ₹50,000 of interest that includes recurring-deposit interest, in the old regime. For those under 60, Section 80TTA covers savings-account interest only, so ordinary RD interest is not sheltered there.
What if you miss an instalment or want out early?
Missing a month usually costs a small penalty per default. In the post-office RD, defaults beyond a set limit can lead to the account being discontinued, though it can often be revived within a window by paying the arrears and penalty.
Premature-closure rights and the interest applied on closure depend on the provider's terms and the scheme rules. Check the product document before opening rather than assuming every bank RD follows the post-office rule.
Official sources
- India Post: National Savings Recurring Deposit Account and current rates
- Income Tax Department: tax information and filing services
- nyvo's dated small-savings rate table
Related nyvo guides
- Post Office Savings Schemes: The Full List: where the five-year post office RD sits among the other small-savings options.
- Section 80TTA and 80TTB: Tax-Free Interest – how much deposit interest, including RD, can be kept out of tax.
- National Savings Certificate (NSC): A Guide covers a five-year post-office option that, unlike RD, does carry an 80C benefit.
If the monthly amount is the only decision, make it today. Pick a figure you will not miss, set the auto-debit for the day after salary lands, and let the account run. Five years on, the deposits plus compounded interest come back as one sum, taxed at your slab, with no surprises along the way.
