What Is a Recurring Deposit? RD Rules, Rate, and Tax

Three lakh rupees goes in. Three lakh fifty-six thousand comes out, five years later, from an account advertising 6.7%.

Most people meet that number and quietly assume they've misread something. They haven't. A ₹3,00,000 lump sum in a five-year deposit at 6.7% grows to about ₹4,18,220, but ₹3,00,000 fed in at ₹5,000 a month through a recurring deposit at the identical rate reaches about ₹3,56,829. Same money, same rate, same five years, and roughly ₹61,391 apart. Nothing is wrong with the product. Something is wrong with how it gets explained, and after reading the pages that rank for this question I think I know why: nearly every one of them is published by a bank or a lead-generation site, and nobody selling a deposit has much reason to spell out that its effective return sits below its advertised one.

This post covers what an RD actually is, why that gap exists, what the post office pays and how you can even verify it, what the scheme's own gazetted rules say about missed deposits and early closure (the field gets both wrong), how the interest is taxed, and the handful of features buried in the rules that no comparison page mentions. It explains how the instrument works. It isn't a recommendation to open one.

What is a recurring deposit?

A recurring deposit is a term deposit you fund with a fixed instalment every month for a fixed tenure, at an interest rate locked on the day you open it and compounded quarterly. The money accumulates, the interest compounds on the growing balance, and you receive the total at maturity.

Almost every explainer defines the RD by comparison: it's a fixed deposit, but monthly. That's true and it's nearly useless, because it describes the paperwork and skips the mechanism. What actually distinguishes an RD is that it's an annuity. You aren't placing money and waiting. You're placing sixty different amounts on sixty different dates, each of which earns for a different length of time. Everything strange about an RD follows from that.

The post office version, governed by the National Savings Recurring Deposit Scheme, 2019, is the cleanest specimen, because its terms are fixed in law while a bank's are set by a product team:

	Post office RD	Bank RD
Tenure	Fixed at 5 years, 60 deposits	Usually 6 months to 10 years
Minimum	₹100 a month, multiples of ₹10	Varies, often ₹500 to ₹1,000
Maximum	None	None
Rate	6.7%, set quarterly by the government	Set by the bank, revised at will
Rate stability	Fixed for your full 5 years	Fixed for your tenure, but the bank's offer moves
Backing	Sovereign, uncapped	DICGC insurance, capped at ₹5 lakh

That last row is the one people skip. A bank RD is insured to ₹5 lakh per depositor per bank, the same cover that applies to your savings and fixed deposits at that bank combined. A post office RD isn't insured at all, because it doesn't need to be: it's a direct obligation of the government. Notably, no bank page ranking for this question mentions the post office RD exists.

The commitment is the real feature. A fixed deposit asks nothing of you after day one. An RD asks for an instalment every month for years, and missing them has consequences that a fixed deposit has no equivalent for.

Why is RD maturity so far below the headline rate?

Because your money is inside the deposit for an average of only about half the term. That's the whole answer, and I could not find it stated plainly on a single page ranking for this topic.

Run it properly. At ₹5,000 a month for five years at 6.7%:

	Amount
Total deposited over 60 months	₹3,00,000
RD maturity at 6.7%	₹3,56,829
The same ₹3,00,000 as a lump sum at 6.7% for 5 years	₹4,18,220
The gap	₹61,391

Your first ₹5,000 earns for sixty months. Your last ₹5,000 earns for one. Average them out and roughly half your money-time simply doesn't exist. To reach the RD's ₹3,56,829 from a ₹3,00,000 lump sum you'd only need about 3.5%, which is nearly half the advertised rate. That isn't a criticism of the RD. It's what the arithmetic of a monthly instalment necessarily produces.

One distinction is worth being precise about, because it's where the comparison usually goes wrong. The RD is not paying a worse rate. Every rupee inside it earns the full 6.7% for exactly as long as it's there. The gap is not a fee, a catch, or fine print. It's the cost of not having the money yet, which is the entire situation an RD is built for. Comparing an RD's maturity to an FD's is only meaningful if the lump sum actually exists. If it doesn't, that comparison isn't a choice you have.

None of the eight calculator pages we checked shows this comparison. Our own RD calculator prints it as a standing output line, because it turns out to be the answer to the question people actually arrived with.

What does the post office RD pay, and how would you check?

The post office RD pays 6.7% per year, compounded quarterly, on a fixed five-year term. Verifying that is far harder than it should be, and the reason is a genuine quirk of how India publishes small-savings rates.

The Department of Posts order for the current quarter, SB Order No. 07/2026 dated 30 June 2026, says that rates for the second quarter of FY 2026-27 "shall remain unchanged" from the first quarter. That's it. The order contains no rate table at all. Neither did the one before it. In quarters where nothing moves, the government doesn't restate the number, it just declines to change it, which means the current rate is only traceable by chaining orders backward until you reach the last notification that actually printed a figure.

The National Savings Institute publishes the resulting table, and it dates the present 6.7% period as running from 1 October 2023 to 30 September 2026. So the RD rate has sat unchanged for roughly eleven quarters, nearly three years.

The longer arc is more interesting than the current number, and it's absent from every page we read:

Period	Post office RD rate
1 April 1981 to 31 March 1982	9.90%
Through FY 2019-20	7.2%
1 April 2020 to 31 March 2023	5.80%
1 April 2023 to 30 June 2023	6.20%
1 July 2023 to 30 September 2023	6.50%
1 October 2023 to 30 September 2026	6.70%

April 2020 is the row that stops you. The rate fell from 7.2% to 5.8% in a single quarter, a drop of 140 basis points, and then sat there for three years. Anyone who opened a five-year RD in early 2020 locked 7.2% for its full life while every new depositor got 5.8%. That's the fixed-rate promise doing exactly what it says, in the direction people rarely think about.

We're deliberately not publishing a bank-by-bank RD rate table. The aggregator pages carrying those tables are badly stale, one of the largest is still showing rates dated November 2023 under a July 2026 headline, and bank pages render their rates through scripts we can't verify. A rate table we can't date honestly is worse than no table.

What happens if you miss a monthly deposit?

A post office RD tolerates up to four defaults; only the fifth discontinues the account. The gazetted rules are specific, and most of the field states them wrongly.

Under the 2019 scheme rules, if there are not more than four defaults, you may extend the maturity by as many months as the number of defaults. The account keeps running. If there are more than four, the account is treated as discontinued, and revival is permitted only within two months from the month of the fourth default. Reviving costs a fee of one rupee for every hundred rupees of the defaulted instalment, for each month of default, which is 1% of the missed instalment per month.

Two errors circulate widely enough to be worth naming. The first is that four consecutive months of missed deposits discontinues the account. The word "consecutive" appears nowhere in the rule, and four defaults don't discontinue anything; five do. The second is that the revival fee is an automatic monthly default charge. It isn't. It's the price of bringing a discontinued account back.

There's also a rule running the other way that no comparison page mentions. Deposit in advance and the scheme pays you a rebate: six to eleven advance deposits in a calendar month earn ₹10 per ₹100 denomination, and twelve or more earn ₹40 for every twelve deposits. Pay a year ahead on a ₹100-a-month account and the ₹40 rebate on ₹1,200 deposited is an immediate 3.33%, sitting on top of the 6.7%. Advance deposits are permitted for up to five years.

What does it cost to close an RD early?

Closing a post office RD early doesn't apply a penalty to your rate, it replaces your rate. The gazetted rules permit premature closure after three years, and specify that interest is then paid at the rate applicable to a Post Office Savings Account.

That rate is 4%. Against the RD's 6.7%, breaking the account surrenders 2.7 percentage points across the whole holding period, not just the part you didn't complete.

The field describes this as a penalty of about 1%, or about 1.8%, depending on which page you land on. Both are wrong, and they're wrong in a way that matters: this isn't a deduction from your rate, it's a substitution of a much lower one. Anyone budgeting a 1% cost for an early exit is understating it by roughly two thirds.

Bank RDs work on the conventional model, typically charging a penalty of roughly 0.5% to 1.5% off the applicable rate, tiered by how long you held it. Those terms are set by the bank, so they're worth reading before you open.

One more correction, because this one is repeated almost universally. Pages routinely say you can withdraw up to 50% of your post office RD balance after a year. The rules do allow access to 50% after twelve deposits, but it's a loan, not a withdrawal, and it carries simple interest at two percentage points above the account rate. At today's 6.7% that's 8.7%, and it's repayable. Free money it is not.

Is RD interest taxable?

RD interest is fully taxable at your slab rate as income from other sources, with none of the exemption that PPF or Sukanya Samriddhi carry. This is where the field is at its worst, and the confusion has a traceable cause.

TDS applies at 10% once interest from a bank, post office, or co-operative society crosses ₹50,000 in a financial year, or ₹1,00,000 for a senior citizen. Budget 2025 raised both, from ₹40,000 and ₹50,000 respectively, with effect from 1 April 2025. Without a PAN, the rate is 20%. The mechanics of all this sit in our TDS explainer.

Now the part that catches people. RD interest is taxable on accrual, annually. A post office RD pays you nothing until year five, but each year's accrued interest belongs in that year's return anyway. Plenty of people discover this when it appears pre-filled in their Annual Information Statement for a year in which they received no money at all.

The folk belief that RDs aren't taxed isn't invented. It's just out of date: RD interest carried no TDS whatsoever until 1 June 2015, when the Finance Act 2015 brought recurring deposits within the definition of "time deposits" for withholding purposes. That's a decade-old change still echoing.

What the field currently publishes for the RD TDS threshold, all of it live as of today:

Source	Threshold stated	Reality
One large aggregator, page stamped "Updated 17 Jul 2026"	₹40,000	15 months stale
A major private bank, on its own RD product page	₹40,000	Understates by ₹10,000
A well-known investment platform	₹5,000	That's the other-payers threshold, misapplied
Another comparison site, contradicting itself in one page	₹10,000 and ₹40,000	Both wrong
The correct figure	₹50,000 / ₹1,00,000	Since 1 April 2025

That first row deserves a second look. A page carrying today's date, refreshed today, still printing a threshold that changed fifteen months ago. The date moved. The fact didn't.

RD deposits also earn no Section 80C deduction. Only the five-year tax-saver fixed deposit qualifies, and the RD, despite the identical five-year term at the post office, does not. Tax treatment turns on your own circumstances, so a chartered accountant is the right person to confirm any of this against your return.

What does the scheme give you that nobody mentions?

The gazetted rules contain three provisions that no comparison page covers, and one of them is free life cover. Reading the scheme itself turns out to be worth the hour. The pages about it leave all three out.

The first is the Protected Savings Scheme. If a post office RD holder dies, the nominee receives the full maturity value as though all sixty deposits had been made, provided the account has run at least two years, the holder was between 18 and 55 at opening, and the first twenty-four deposits went in without default. The benefit is capped at the ₹100-denomination value. It's an embedded death benefit you never applied for and never paid a premium on.

The second is extension, which comes in two distinct flavours the rules keep separate. You can continue the account with deposits for up to five more years, or you can retain the balance for up to five years without making any fresh deposits at all, still earning. Neither route appears on any competitor page we read.

The third is the maturity table in the rules themselves, and it's a curiosity worth knowing about if you ever go looking. The 2019 gazette fixes ₹7,231.38 as the five-year maturity per ₹100 of monthly deposit. Work backwards from that figure and it implies a rate of exactly 7.2%, which was the rate on the day the rules were notified in December 2019. The table has never been amended. At today's 6.7% the correct figure is ₹7,136.58, about ₹95 lower. The law still prints a number the law's own rate no longer produces.

We used that fossil for something useful: our RD calculator reproduces ₹7,231.38 exactly at 7.2%, which means the formula it runs is the same one the government used when it drafted the table.

Should you open an RD or an FD?

An FD takes a lump sum you already have; an RD takes an instalment from income you haven't received yet. They answer different questions, and most head-to-head comparisons quietly assume you have money you may not have.

	Recurring deposit	Fixed deposit
What it needs	A monthly instalment	A lump sum, once
Maturity on ₹3,00,000 at 6.7% over 5 years	₹3,56,829	₹4,18,220
Why the difference	Your money averages half the term inside	All of it is inside the whole term
If you miss a payment	Defaults, revival fees, possible discontinuance	Nothing to miss
Natural fit	Converting monthly surplus into a locked sum	Parking a sum you already hold

The maturity row is the one that gets misread. An FD's higher figure is not evidence that it's the better instrument; it's evidence that a lump sum spends more time earning. Reading that gap as a product comparison is the mistake the whole field's framing encourages.

Where an RD genuinely fits is the sinking fund shape: a known expense on a known date, funded from monthly income, in an instrument that penalises you for raiding it. The rigidity is doing real work there. For the full mechanics of the lump-sum sibling, including the early-withdrawal penalty and the India-US mapping, see what is FD vs CD explained. For why time inside the account matters more than the rate on it, what is compound interest.

What this post does not cover

This explains how the instrument works. It doesn't compare RD returns against SIPs or mutual funds, which are market-linked and not a like-for-like comparison, and it doesn't rank banks or tell you where to open an account. It deliberately carries no bank-by-bank rate table: the aggregator pages publishing those are months to years stale, bank pages render rates through scripts we can't verify, and an undated rate table is worse than none. Check the rate with the bank itself on the day you open.

On sourcing, since this is a money page. The scheme rules, the default and revival regime, the advance deposit rebate, the premature closure rule, the loan provision, and the maturity table are all read from the National Savings Recurring Deposit Scheme, 2019 (G.S.R. 918(E)) itself. The rate history is from the National Savings Institute's published table, and the current quarter from SB Order 07/2026. Two limits are worth stating plainly. The TDS thresholds here come from tax publishers, because the Income Tax Department's own site blocked every route we tried, so confirm the current figures with a CA before relying on them. And the Income Tax Act 2025, in force since 1 April 2026, renumbers many provisions; we've referred to Section 194A because that's how the thresholds are still universally published, but the section numbering may have moved and we couldn't verify the new number from the Act itself. For anything touching your own return, a qualified professional is the right check.

Frequently asked questions

What is a recurring deposit? A recurring deposit is a term deposit you fund with a fixed instalment every month for a fixed tenure, at an interest rate locked on the day you open it. The bank or post office compounds that interest quarterly and pays the accumulated total at maturity. The post office version, governed by the National Savings Recurring Deposit Scheme, 2019, runs a fixed 5-year term of 60 monthly deposits, takes a minimum of Rs 100 a month in multiples of Rs 10, and has no upper limit. Bank RDs offer more tenure choice, usually 6 months to 10 years. The defining feature is the commitment: you are promising the monthly instalment, and missing them carries consequences a fixed deposit has no equivalent for.

What is the current post office RD interest rate? The post office RD pays 6.7% per year, compounded quarterly, on a fixed 5-year term. The National Savings Institute's own rate table dates the current 6.7% period as running from 1 October 2023 to 30 September 2026, so it has been unchanged for roughly eleven quarters. Confirming that number is oddly hard. The Department of Posts order for the July to September 2026 quarter, SB Order 07/2026 dated 30 June 2026, states only that rates remain unchanged from the previous quarter and contains no rate table at all. In quarters where nothing changes, the government does not restate the figure, so the rate traces back to the last notification that actually published one.

Why is RD maturity lower than the interest rate suggests? Because your money is inside the deposit for an average of only about half the term. This is the most common surprise with an RD and almost no page explains it. Rs 3,00,000 paid in at Rs 5,000 a month over five years at 6.7% matures at about Rs 3,56,829. The same Rs 3,00,000 placed as a single lump sum at the same 6.7% for the same five years reaches about Rs 4,18,220. That is a gap of roughly Rs 61,391 on identical money at an identical rate. Your first instalment earns for five years; your last earns for one month. An RD is not paying a worse rate, it is paying the same rate on money you do not have yet.

Is RD interest taxable? Yes, fully, at your slab rate as income from other sources. RD interest gets none of the exemption that PPF or Sukanya Samriddhi carry, and it is taxable on accrual each year even though a post office RD pays nothing until year five, so each year's accrued interest belongs in that year's return. TDS applies at 10% once interest from a bank, post office, or co-operative society crosses Rs 50,000 in a financial year, or Rs 1,00,000 for senior citizens, thresholds Budget 2025 raised from Rs 40,000 and Rs 50,000 with effect from 1 April 2025. Without a PAN the rate is 20%. RD interest carried no TDS at all until 1 June 2015, which is where the persistent folk belief that RDs are untaxed comes from.

What happens if you miss an RD instalment? In a post office RD, the gazetted rules allow up to four defaults. With four or fewer, you may extend the maturity by as many months as the number of defaults. Only when there are more than four does the account become discontinued, and revival is then permitted only within two months of the month of the fourth default. Reviving costs a fee of one rupee for every hundred rupees of the defaulted instalment, for each month of default, which works out to 1% of the missed instalment per month. Much of the field states this wrongly, saying four consecutive months of missed deposits discontinues the account. The word consecutive appears nowhere in the rule, and four defaults do not discontinue an account. Five do.

What does it cost to close a post office RD early? More than the field claims. The gazetted rules permit premature closure after three years, and specify that interest is then paid at the rate applicable to a Post Office Savings Account, currently 4%. Against the RD's 6.7%, that surrenders 2.7 percentage points across the entire holding period, not just the remaining term. Secondary pages commonly describe this as a penalty of about 1% or about 1.8%, and both figures are wrong: it is not a deduction from the RD rate, it is a substitution of a different and much lower rate. Bank RDs work differently and typically apply a penalty of roughly 0.5% to 1.5% off the applicable rate, so check your own bank's terms.

Should you open an RD or an FD? They answer different questions, and the honest split is about cash flow rather than returns. A fixed deposit takes a lump sum you already have; a recurring deposit takes a monthly instalment from income you have not received yet. Comparing their maturity values is misleading, because the RD's lower figure comes from your money spending less time inside, not from a worse rate. If the choice is between an RD and an FD you could actually fund today with the same total, the lump sum wins on arithmetic alone. If the lump sum does not exist, that comparison is not a real choice. Deciding what suits your own situation is worth a conversation with a qualified adviser.

Sources

• Ministry of Finance, National Savings Recurring Deposit Scheme, 2019 (G.S.R. 918(E), notified 12 December 2019; the 5-year term, the ₹100 minimum, the default and revival rules, the advance deposit rebate, premature closure at POSA rate, the loan provision, and the maturity table are all from this notification) indiapost.gov.in
• National Savings Institute, Ministry of Finance, Interest rates on National Savings Schemes (the rate history, and the dating of the current 6.7% period as 1 October 2023 to 30 September 2026) nsiindia.gov.in
• National Savings Institute, Scheme-wise interest rate table nsiindia.gov.in
• Department of Posts, SB Order No. 07/2026, dated 30 June 2026 (rates for Q2 FY 2026-27 unchanged; the order carries no rate table) staffnews.in mirror
• ClearTax, Section 194A: TDS on interest other than interest on securities (the ₹50,000 and ₹1,00,000 thresholds effective FY 2025-26) cleartax.in
• TaxGuru, Amendment to Section 194A, TDS on recurring deposit interest from 1 June 2015 taxguru.in