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| July 15, 2025

What is a Recurring Deposit (RD)? Features, Benefits & How It Works

There is something reassuring about setting aside your money, knowing that your future plans or sudden financial exigency will not catch you off guard. It gives you a sense of relief, control and a quiet confidence that your finances are on the right track. Yet, savings always feel like something you will do later, like when you start earning more, spend less or get through the month. 

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That is precisely where a Recurring Deposit (RD) comes in. It simplifies savings by turning it into a manageable monthly habit.

You can start saving by investing as low as INR 100, with no upper limit. Just small, regular monthly deposits that add up to something meaningful over time.

What is a Recurring Deposit?

A recurring deposit or RD is a term deposit where you deposit a fixed amount every month for a specific period, predetermined by you. At the end of this term, you will receive the total amount you have saved along with the interest you have earned over time.

Unlike lump sum deposits, where you need to deposit all at once, RDs are designed for consistency in savings. RD account holders do not need to have a large sum ready to invest; instead, they can simply invest in recurring deposits. It is an excellent tool for individuals with a steady income, those who want to save regularly or a first-time investor aiming for a goal-based savings plan with less market volatility and guaranteed returns. If you are unsure about which savings plan suits you better, understanding the differences between a recurring deposit and a fixed deposit helps you make a sound decision based on your financial goals and spending habits.

Features of Recurring Deposits

An RD has several key features that make it an attractive investment tool for individuals at various stages of financial planning. Multiple features that make recurring deposits so dependable are as follows:

Fixed Monthly Contributions

Individuals opting to open an RD account contribute a fixed amount every month, which encourages them to maintain consistency and build a regular savings habit without overwhelming their budget.

Customisable Tenure

Investors have the option to choose a deposit period that aligns with their goals, ranging from as short as six months to as long as ten years.

Assured Interest Rates

The interest rate on RD is fixed at the time of account opening, so the earnings you make remain predictable throughout the chosen tenure.

Quarterly Compounding of Interest

The interest is compounded every quarter in case of RDs, allowing your money to grow steadily over the period you choose without any additional input from your side.

Nomination Facility

RDs also come with a nomination option, allowing investors to assign a nominee to ensure their savings are transferred smoothly in the event of an unexpected occurrence.

Option for Premature Withdrawal

While RDs encourage investors to stay invested till the end of the tenure, which means you do not have the option to withdraw your RD early if needed, in case you wish to withdraw your money before maturity, this may come with minor penalties or reduced interest.

Benefits of Recurring Deposits

An RD is a viable option for investors who wish to cultivate a habit of regular savings while also earning returns. It is particularly suited for individuals who prefer a structured approach to saving without the complexities of market-linked investments. The key benefits of recurring deposits include:

Encourages Financial Discipline

By requiring a fixed deposit every month, RDs help you develop a disciplined saving habit that gradually becomes second nature.

Accessible to All Income Levels

Since the monthly investment amount can be as low as INR 100, individuals from all income levels can invest in RD and inculcate a habit of regular savings to save for rainy days.

Offers Risk-Free Returns

RDs are not affected by market fluctuations, which means your savings are stable and guaranteed. When comparing recurring deposits vs fixed deposits, both offer risk-free returns; however, RDs have the added advantage of promoting regular savings without requiring a lump sum investment upfront.

Supports Goal-Based Planning

If you plan to save for your child’s education, a family function or a future purchase, RDs help you set aside money systematically for specific objectives.

Easy to Open and Manage

Opening an RD account is straightforward and does not involve lengthy paperwork or complex processes, making it ideal even for first-time investors.

How Does it Work?

Suppose you open an RD where you deposit INR 100 every month for two years, with a 6.5% annual interest rate compounded quarterly. Each of your deposits earns interest from the month it is made until the maturity date.

At the end of the tenure, you receive:

  • The total principal (INR 1200 in this case)
  • Plus the accumulated interest

The best part about investing in RD is that you do not have to track or manage anything in between. The predetermined monthly deposits will be automatically debited from your account, after which you can watch your savings grow gradually.

Since the interest is compounded every quarter, which makes the calculation a bit complicated, several banks and NBFCs provide RD calculators to help you estimate your maturity value even before you begin.

Enquire Now!

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