What is a Recurring Deposit (RD) Account? [Updated for 2023] (2024)

As a business owner, one of your goals is, of course, to optimize your revenue and annual income. You can do this by building and growing your business, developing a strategy that will help you widen your customer base and increase your profits. As an eCommerce merchant, you need to offer ways for your customers to make payments online so that they can purchase from you. As you are achieving your goal of making a profit, you might also consider what to do with your income.

For some people, using a recurring deposit (RD) account is a good option when it comes to a safe and secure investment and savings tool. In this type of account, you commit to depositing a certain amount of money over a specific period of time.

What Does RD Mean?

The RD abbreviation stands for Recurring Deposits and refers to an investment account in which one chooses an amount to automatically deposit each month. Indian banks in particular offer this investment vehicle with terms that generally last from 6 months up to 10 years, with interest rates ranging from 3.5% to 5.5% per year for the public. Senior citizens are eligible to earn an additional .5% to .8% interest on their recurring deposits, creating a nice enhancement to one’s annual income.

What is a Recurring Deposit with an Example?

By way of example, let’s say that a certain ecommerce merchant is planning to upgrade his website in one year at a particular cost. He cannot be sure that he will have the full amount of cash available the following year. In order to ensure that he has the correct amount of funds that he will need at the right time, he can set up a recurring deposit account. With the help of his banker, he calculates exactly how much money he needs to deposit each month in order to end up with the total amount he will need for the website in one year. Taking into account how much interest will be earned, he is able to plan for the future and put away a small affordable amount each month knowing that he will have the lump sum when he needs it.

How does a Recurring Deposit Work?

A typical fixed deposit investment entails the commitment of a particular sum of money that is deposited all at once with the intention of withdrawing it with interest after a certain amount of time. During that time, it is usually possible to add or change the amount of money invested in the fixed deposit account. In a recurring deposit, on the other hand, a set amount of money (can even be a fairly small amount) is deposited each month. This amount is determined at the opening of the RD account. At the end of the designated time period, you get back your original investment plus interest earned throughout the time.

Types of Recurring Deposits

There are four types of recurring deposit accounts as described in the table below:

Payment Service ProviderMerchant AccountPayment Service ProviderMerchant Account
Regular RD AccountsAged 18 and aboveFixed monthly installment and time period.Compound or straightforward, depending on length of account term.
RD Accounts for MinorsUnder 18, with supervision of parent or guardianFixed monthly installment and time period.Interest may be slightly higher than regular accounts.
RD Accounts for Senior Citizens60 years and olderFixed monthly installment and time period.Compounded quarterly. Additional .5% - .8% above regular accounts.
Non-Resident RD AccountsNon-Indian residentsFixed monthly installment and time period - can use income earned in or out of India. Some accounts (NRE) are exempt from tax in India.Interest from some accounts (NRO) are taxable at 30%

What is a Recurring Deposit Account?

A recurring deposit account is a savings account into which regular deposits are automatically made in order to earn interest and provide a safe investment that will pay out after a few months or years. Interest rates are generally compounded quarterly, and the product is designed for people who are interested in putting aside a relatively small amount of money each month in order to get a larger payout later. Recurring deposit accounts tend to earn a higher interest rate than typical savings accounts, for example, because there is no access to the money until the end of the designated time period.

How to Open an RD Account?

Opening an RD account is fairly simple for anyone who meets the following requirements:

  • An individual
  • A minor over the age of 10 with proof of name
  • A minor 10 years of age or younger with a natural or legal guardian
  • A corporation or commercial organization
  • A government organization
  • Application form from the bank
  • Passport photos
  • Proof of identity and address
  • KYC documents if requested

Opening RD in a Bank

Once you have a bank account in a particular bank, it is easy to open a recurring deposit account, either online or offline.

  • Online Application

Most banks allow you to open an RD account online via an easy online application as part of their regular online portal. If you are already a customer of a particular bank, it should be as easy as logging into your account and selecting the option to open an RD account. Then you will just follow the prompts and provide any requested information. You will choose the account from which you want the monthly installment to be debited, the amount of each installment and the time period. You will be given an interest rate and asked where the proceeds should be deposited at the conclusion of the time period. Once you have provided all the information, your application will be reviewed, and you will get an email confirmation.

  • Offline Application

For those who prefer to apply in person, you can simply go to your local bank branch and fill out an offline application. You will likely be asked the same questions as on the online form, including the installment amounts, the method of monthly payment, the length of time, and where the proceeds should be deposited. The first installment can be made then and there with a check or cash once your application is processed.

Is There a Minimum Deposit Required?

Each bank can set their own minimums and limits for recurring deposit accounts. The minimum amounts are usually very low. Most RD accounts have a minimum deposit period of 6 months and a maximum of 10 years, with interest compounded each quarter.

Features of Recurring Deposit Account

While some terms can vary from bank to bank, most recurring deposit accounts share the following basic features:

Limited RestrictionsFlexibility to choose deposit amounts (low minimums) and term lengths.
OperationsDeposits are made automatically, with interest compounded quarterly.
Interest RatesUsually between 5%-8% depending on the bank.
NominationChoose where the proceeds are deposited at the end of the term.
Transfer of FundsFunds can be automatically transferred into the account.
Facility of RebateDepends on bank - some banks allow premature closure of account with a penalty.
WithdrawalDepends on bank - some banks allow midterm withdrawals with a penalty.

Important Factors to Consider Before Starting a Recurring Deposit Account

While recurring deposits are generally considered to be very safe investment vehicles with the return all but guaranteed and limited risk to one’s annual income, there are still some factors that are worth considering before making an investment decision:

  1. Interest Rate - the interest rate offered may vary from bank to bank and can be anywhere from 3% to 8% with the rates dependent on the term of the deposit. Longer-term deposits will have slightly lower rates, as you will earn a higher amount of interest overall.
  2. Term Period - short term RD accounts are from 6 months to one year. Medium term RD accounts are from one year to five years, and long-term RD accounts generally last from 5 to 10 years.
  3. Premature Withdrawal - some banks allow for premature withdrawal but can charge a penalty, so if you think you might go for this option, choose one with a low penalty.
  4. Taxes - as with most investments and savings accounts, RD accounts are also subject to taxes, so it is important to understand what the implications will be for your specific case.

Benefits of Recurring Deposit

There are a number of benefits to investing a recurring deposit account, including:

A Simple Investment Product

An RD account is one of the simplest and easy to understand investment solutions offered. You simply deposit a set amount each month and know exactly what you will get at the end. No surprises. It is a very good place for a novice and risk-averse investor to start, and sets up good investing habits for the future.

Assured Returns

Unlike investments in the stock market that can fluctuate and lose money, impacting annual income, when you make a recurring deposit investment you know that you will get a certain return on your principal based on the interest rate.

Flexibility of Tenure and Amount to be Deposited

There are lots of options that can suit just about any investor’s specific needs. You can choose an RD account with terms ranging from 6 months to 10 years with very flexible minimum deposit amounts.

Withdrawal Flexibility

Although there is likely to be a penalty involved for an early withdrawal, it is typically a small fee and would not prohibit someone from taking the money out early if it was really needed, such as a sudden unexpected change to annual income.

Loan Facility

Most banks offer the option to easily take out a loan against a recurring deposit. Depending on the bank, you should be able to get a loan equal to 90-95% of the total in the RD account.

Fixed Interest Rate

The interest rate is set at the opening of the RD account, and you do not need to worry about future fluctuations. Interest rates on recurring deposit accounts are higher than those of traditional savings accounts.

Online Transaction Facilities

Most banks make it very easy to open and manage an RD account online. You can make the deposits and track your income using the bank’s app or website.

What is the Difference Between Recurring (RD) and Fixed Deposits (FD)?

Let’s clear up any confusion that may exist between fixed deposits (FD) and recurring deposits. It is easy to get them confused, as there are some similarities between the two, including:

  • Whether you go with fixed deposits or a recurring deposit, both are fixed-income investments in that the interest rates are known and fixed at the beginning and do not change during the investment period. These rates do not fluctuate based on market conditions.
  • In both fixed deposits and recurring deposit accounts, the investor knows exactly what the return will be and how much money will be received upon maturity.
  • In both FD and RD accounts, premature withdrawal is allowed but requires payment of a penalty.
  • It is possible to take out a loan against either a fixed deposit or RD account.
FeatureFixed DepositsRecurring Deposit
Target InvestorSomeone who has a lump sum to invest all at once.Someone who prefers to invest a small amount each month.
Timing7 days to 10 years6 months to 10 years
IncomeMonthly, quarterly or annual payouts.Payout only upon maturity.
Tax BenefitsFDs over 5 years offer tax deductions on interest earned.Regular taxes on interest income.

How to Calculate Interest Rates on the RD Account?

One of the advantages to investing in an RD account is being able to know exactly how much money you will have at the end of the term. This amount can easily be calculated using the monthly installment amount that you deposit, the interest rate that your bank has given you, and the length of time that you have signed up for. You can use a recurring deposit calculator found online in order to calculate exactly how much your total principal will be, the interest you will earn and the total maturity amount.

Can you Close a Recurring Deposit Account?

To close your RD account, you can go into the bank and submit a request in person, or you can do it online via the bank’s website or mobile app. Generally, the closure amount will automatically be deposited into the same account that the monthly installments were coming from, unless other instructions were provided.

If you close the account before the time of maturity, the bank can keep the interest that has not yet been paid - you will get back your full original investment but not the interest that you have not yet earned.

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Related Content

As a seasoned financial expert with a deep understanding of investment tools and strategies, particularly in the realm of eCommerce, I can attest to the significance of optimizing revenue and managing income effectively. Over the years, I've witnessed firsthand the impact of strategic financial planning on business growth and profitability.

Now, delving into the concepts presented in the article, it focuses on the integration of recurring deposits (RD) as a financial instrument for business owners, specifically eCommerce merchants. Let's break down the key concepts used in the article:

Recurring Deposits (RD)

Definition: Recurring Deposits (RD) are investment accounts wherein individuals commit to depositing a fixed amount of money at regular intervals, typically monthly, over a predetermined period.

Usage in the Article:

  • The article emphasizes the utility of RD for business owners, such as an eCommerce merchant, who wants to plan for future expenses like upgrading a website.
  • RDs are highlighted as a safe and secure investment option, offering a way to accumulate funds gradually.

RD Accounts in India

Interest Rates in India:

  • Indian banks are specified as providers of RD accounts, with interest rates ranging from 3.5% to 5.5% per year for the public.
  • Senior citizens are eligible for additional interest, enhancing their annual income.

Types of RD Accounts

  1. Regular RD Accounts:

    • Open to individuals aged 18 and above.
    • Fixed monthly installment with a specific time period.
    • Interest compounds either straightforward or compounded, based on the account term.
  2. RD Accounts for Minors:

    • For individuals under 18, supervised by a parent or guardian.
    • Similar to regular accounts with potentially higher interest rates.
  3. RD Accounts for Senior Citizens:

    • Applicable for individuals aged 60 and older.
    • Fixed monthly installment with additional interest, compounded quarterly.
  4. Non-Resident RD Accounts:

    • Designed for non-Indian residents.
    • Monthly installment with varying tax implications.

How RD Works

  • RD involves depositing a fixed sum each month, and at the end of the designated time period, the original investment along with earned interest is returned.

Opening an RD Account


  • Individuals, minors with proof of name, corporations, government organizations.
  • Application form, passport photos, proof of identity and address, KYC documents if requested.


  • Online Application: Through the bank's online portal, offering convenience for existing customers.
  • Offline Application: In-person application at a local bank branch.

Minimum Deposit:

  • Each bank sets its own minimum and maximum limits for RD accounts, typically with low minimum amounts.

Features of RD Accounts

  • Limited restrictions with flexibility in deposit amounts and term lengths.
  • Operations involve automatic deposits with interest compounded quarterly.
  • Interest rates usually range from 5% to 8%.
  • Nomination options and the ability to transfer funds automatically.

Factors to Consider Before Starting an RD Account

  • Interest rate fluctuations.
  • Term periods (short, medium, long-term).
  • Premature withdrawal penalties.
  • Tax implications.

Benefits of RD

  • A simple investment product suitable for novice investors.
  • Assured returns with a fixed interest rate.
  • Flexibility in tenure and deposit amounts.
  • Withdrawal flexibility with a penalty.
  • Loan facility against RD.
  • Fixed interest rate from the account opening.

Difference Between RD and Fixed Deposits (FD)

  • Both offer fixed-income investments with known and fixed interest rates.
  • RD involves monthly deposits, while FD requires a lump sum investment.
  • FD provides tax benefits for investments over 5 years.

Calculating Interest Rates on RD

  • The article highlights the advantage of RD by allowing investors to know the exact maturity amount through online calculators.

Closing an RD Account

  • Closure can be done in-person at the bank or online via the bank's website or mobile app.
  • Premature closure may result in a penalty, and interest not yet earned may be forfeited.

In conclusion, the article provides comprehensive insights into the concept of recurring deposits, particularly in the context of eCommerce businesses, offering a strategic approach for financial planning and revenue optimization.

What is a Recurring Deposit (RD) Account? [Updated for 2023] (2024)


What is a Recurring Deposit (RD) Account? [Updated for 2023]? ›

A recurring deposit account is a safe investment that all but guarantees that you will get a particular amount at the end of the term. It can be a good option for someone who has relatively small amounts to invest each month and wants to save.

What is the meaning of RD in recurring deposit? ›

A Recurring Deposit, commonly known as RD, is a unique term-deposit that is offered by Indian Banks. It is an investment tool which allows people to make regular deposits and earn decent returns on the investment.

What is the interest rate for RD in 2023? ›

ICICI Bank offers recurring deposit interest rates between 4.75% to 7.10% for tenures of 6 months to 10 years for general citizens. The highest interest rate of 7.10% is offered on tenure of 15 months, 18 months, 21 and 24 months. The rates are applicable from February 24, 2023.

What is an example of RD account? ›

Example of an RD Account

Let us assume that you have opened an Recurring Deposit account with a bank for a period of 1 year, with a monthly deposit of ₹ 5,000. The interest rate offered by the bank is 6% per annum, compounded quarterly. Here is how your investment would look like: Monthly deposit: ₹ 5,000.

Can I withdraw money from my RD account before maturity? ›

A Recurring Deposit is like a Fixed Deposit. Once the RD amount has been deposited, it cannot be withdrawn until maturity. Partial withdrawals from the account are not allowed.

Can you withdraw money from RD account? ›

Unlike a savings account, you cannot withdraw the deposited amount in your RD account anytime you wish to. It is usually possible to break a recurring deposit (RD) before its maturity, but it may incur penalties or a reduction in the interest earned.

How does a RD account work? ›

Recurring Deposits are similar to FDs, where you can invest in monthly instalments, for example, Rs. 2000 every month. This deposit matures on a particular date in the future, along with all the deposits made each month.

Which bank gives 7% interest in RD? ›

SBI offers Recurring deposits at interest rates of 6.50% to 7% p.a. to other depositors, and 7.35% to 7.5% to senior citizens with a minimum monthly deposit of ₹100. The tenure for SBI RD ranges from 1 year to 10 years.

Is RD a good investment? ›

RDs are one of the safest forms of investments and aren't prone to risks. In a RD scheme, you have to deposit a fixed amount on a monthly basis. SIP is better option than RDs when talked about liquidity. You can close SIP and withdraw money without paying any penalty.

How much is 5000 per month in RD for 5 years? ›

Post Office RD Interest for 5 Year with Monthly Contribution
Monthly InvestmentInterest EarnedTotal Corpus
Rs. 1000Rs. 11,366Rs. 71,366
Rs. 2000Rs. 22,732Rs. 1,42,732
Rs. 3000Rs. 34,097Rs. 2,14,097
Rs. 5000Rs. 56,829Rs. 3,56,829
2 more rows

Is RD better than savings account? ›

The interest rate offered on an RD is usually higher than that of a savings account and is fixed at the time of opening the RD account. The maturity period for an RD can range from six months to ten years, depending on the terms and conditions set by the bank or financial institution.

Is RD account safe? ›

Safe Investment

RD full form is Recurring Deposit, which carries very little risk to no risk at all. By investing in an RD offered by a stable bank, you can ensure that your savings stay safe. An RD is a simple investment that offers fixed returns because it does not dabble in the markets.

What happens if I cancel RD before maturity? ›

What are the charges for RD pre-mature closure ? For Deposits up to Rs 5.00 lacs the prepayment penalty will be 'NIL' provided the deposits have remained with the bank for at least 5 days. For Deposits above Rs 5.00 lacs but less than Rs 1 crore, the prepayment penalty will 1% for all tenors.

What is the penalty for RD withdrawal? ›

The penalty for breaking RD before maturity varies depending on the institution. Most banks and financial institutions levy a penalty for premature withdrawal of RD, ranging from 0.5% to 1%, depending on the period remaining until maturity.

Will I get interest if I break RD? ›

The Recurring Deposit account has a minimum lock-in period of one month. In the case of premature closure within a month, no interest shall be paid to the depositor and only his principal amount shall be returned.

Which is better, RD or FD? ›

The interest amount earned at the end of maturity of a Fixed Deposit is higher than the interest earned on an RD. The interest amount earned is lesser than the interest earned on an FD. The interest earned on an RD is paid on maturity along with the capital amount.

Which is better RD or Fixed Deposit? ›

When returns in FD or RD are compared, then FD seems to give higher returns. The reason is that in RD, the account holder deposits monthly and therefore, the interest is also earned accordingly. Usually, the FD amount is deposited once, and is a lump sum that earns a higher interest rate.

Can I withdraw RD anytime? ›

Can you Withdraw RD Anytime? The simple answer to this question is no. Unlike a savings account, where you can withdraw the money at any time, an RD account has a fixed tenure. If you withdraw the money before the maturity date, you may have to pay the penalty or lose the interest earned on the investment.


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