How is RD interest calculated?

Each monthly deposit earns from the month it is made until maturity, compounded quarterly. Because deposits are monthly and compounding is quarterly, the monthly rate used is the cube root of the quarterly rate rather than the annual rate divided by twelve — which is why this calculator agrees with published maturity tables.

Why is the monthly rate not just the annual rate ÷ 12?

Because compounding twelve times a year at rate i must produce the same annual outcome as compounding four times at r/4. Solving for i gives the cube root of (1 + r/4), which is slightly less than r/12. Using r/12 would credit you interest the bank does not pay.

What does ₹5,000 a month for five years give me?

At the current post office rate of 6.7%, around ₹3,56,800 on ₹3,00,000 deposited — roughly ₹56,800 of interest. Bank rates differ, so enter the rate you have actually been offered.

Is RD interest taxable?

Yes, at your slab rate, in the year it accrues. TDS applies once interest crosses the threshold, and TDS is not the whole liability — you owe the difference up to your slab. There is no exemption or indexation benefit on recurring deposits.

Should I choose an RD or a SIP?

It depends on the horizon. An RD's return is contractual, which suits a goal within two or three years where a market fall would be unrecoverable. A SIP into equity has historically returned more over long periods but can be down when you need the money. The structure of the two is identical; only the certainty differs.

What if I miss a monthly deposit?

Most providers charge a small penalty per missed instalment, and repeated defaults can lead to the account being closed or its rate reduced. These figures assume every instalment is paid on time, so treat them as the best case.

Investment · FINANCIAL TOOLS

Recurring Deposit Calculator

Work out an RD maturity value using the quarterly compounding convention banks actually apply to monthly deposits.

Understand the calculation

Calculation logic, formula, example and guardrails behind the estimate.

How it works

Each monthly deposit earns from the month it is made until maturity, so the first deposit earns for the whole term and the last for one month. The total is the sum of every deposit compounded for its own remaining period.

The rate handling is where care is needed. Recurring deposits compound quarterly, so the monthly rate is the one that compounds up to the quarterly rate — the cube root of it — rather than the annual rate divided by twelve. At 6.7% that is 0.555242% a month against 0.558333%, and applying the wrong one inflates a five-year maturity value.

More detail

Getting that right is what makes ₹5,000 a month for sixty months at 6.7% land in the range published post office maturity tables quote. The frequency scenario above shows how much the convention itself is worth.

The schedule groups deposits by year so you can see interest overtaking the pace of the deposits, which is the point at which a recurring deposit starts working for you rather than merely holding your money.

To deposit one sum instead of saving monthly, use the fixed deposit calculator.

For the market-linked version of the same monthly habit, see the SIP calculator.

To work out what you can commit each month, try the savings rate calculator.

Formula

i = (1 + r/n)^(n/12) − 1; M = D × [((1 + i)^m − 1) ÷ i] × (1 + i)

The first expression is the one that matters and the one usually skipped. It converts the scheme's compounding rate into the monthly rate that is consistent with it, so the annuity formula that follows uses a rate the bank would recognise.

M: Value at maturity.
D: Deposit made each month.
r: Advertised annual rate, as a decimal.
n: Compounding periods a year — 4 for most RDs.
i: Monthly rate consistent with that compounding.
m: Number of monthly deposits.

Worked example

₹5,000 deposited every month for sixty months into a post office recurring deposit at the current 6.7%.

01Quarterly rate6.7% ÷ 4 = 1.675%
02Monthly rate1.01675^(1/3) − 1 = 0.555242%
03Total deposited₹3,00,000
04Value at maturityabout ₹3,56,800
05Interest earnedabout ₹56,800
06Effective annual rate6.870%

The interest is close to 19% of the total deposited over five years, which is what a modest rate does when each instalment has an average of two and a half years to work. Had the monthly rate been taken as 6.7% ÷ 12, the maturity value would have come out several hundred rupees higher than the post office will actually pay.

Important considerations

01
The compounding convention is not a detail
Most online RD calculators divide the annual rate by twelve, which produces a maturity value the bank will not pay. The correct monthly rate is lower, because a rate compounded twelve times must be smaller than one compounded four times to produce the same annual outcome. The gap looks negligible per month and is visible in the total.
02
An RD and a SIP are the same shape, different risk
Both put a fixed amount in monthly and both benefit from each instalment's own compounding period. The difference is that an RD's rate is contractual and a fund's is not. For a goal two years out that certainty is worth more than the expected extra return; for one twenty years out it usually is not.
03
Tax treatment favours almost anything else
RD interest is taxed annually at your slab rate with no exemption or indexation. PPF is untaxed, equity funds are taxed only on redemption and at lower rates, and debt funds at least defer the liability. For a top-bracket saver an RD is one of the least tax-efficient ways to hold money — which is a reason to use it for short horizons rather than long ones.

Limitations

Tax is not computed. Interest is taxable at your slab rate and TDS applies above the threshold, which takes a 6.87% effective return to about 4.81% for a top-bracket taxpayer.
Missing an instalment usually attracts a penalty and, at the post office, repeated defaults can lead to the account being discontinued. None of that is modelled.
Premature closure reduces the applicable rate, so the figures here assume the deposit runs its full term.
The rate is fixed at opening for the whole term. A deposit opened in a different quarter carries that quarter's rate.

Frequently asked questions

Common questions about the recurring deposit calculator and the assumptions behind it.

Next useful checks

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Disclaimer

This calculator is provided for general information and planning only. It is not investment, tax or legal advice, and it does not take your personal circumstances into account. Outputs are estimates based on the assumptions stated on this page, exclude taxes and charges unless said otherwise, and market-linked returns are not guaranteed — the value of investments can fall as well as rise. Lending terms, rates and eligibility are decided by the lender. For advice on your own situation, speak to a qualified professional, several of whom you can consult on Finvestalk.