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An introduction to Recurring Deposit

What is a recurring deposit? Where can it be opened? Is it a good avenue to invest your money? Where does it stand compared to a systematic investment plan (SIP)?

Here are your answers.



We know that lump-sum investment in stocks is not advisable. (Please read “Cost Averaging” for more)

Compared to that, one-time lump-sum investments in fixed income instruments are considered to be very safe.

But what if you have limited means, and you can not invest a large amount at one go? Can you still save for your goals, slowly and steadily?

(To know more about goals and investing for them, please read “Goal Based Investing”)

Yes, it is possible. Your answer is: Recurring Deposit.

What is a Recurring Deposit?

A recurring deposit is a fixed deposit (FD), with a slight difference in the way it operates – instead of a one-time lump-sum investment, you make a fixed investment every month.

This monthly investment earns you a fixed rate of interest. At the end of the tenure of the recurring deposit, you get back your invested amount (principal) plus the interest earned on it.

Thus, you make equal periodic payments, and get it back with interest as a lump-sum at the time of maturity.

A recurring deposit is one of the best options available for investors having a low income, apart from Micro SIPs.

(To know more about Micro SIPs, please read “More on Systematic Investment Plan (SIP) and Micro SIP”)


Characteristics and advantages of a recurring deposit

Fixed monthly investment

You invest a fixed sum every month. It’s like paying the EMI!

And the best part is that for most banks, the minimum monthly investment can be as low as Rs. 100! There is usually no upper limit.

Fixed tenure / duration for which you make monthly contribution

You start a recurring deposit account for a fixed time period. You make the pre-determined payment every month for this entire duration.

This maturity period of the recurring deposit can range between 6 months and 10 years.

Fixed rate of interest

The rate of interest offered on a recurring deposit is not floating – it remains the same for the entire tenure of the recurring deposit.

The rate of interest offered varies from bank to bank, and also depends on the tenure of the recurring deposit. But the interest rates offered typically range from around 4% to 10%.

For example, State Bank of India (SBI) offers interest rates between 4.75% and 10%. Similarly, ICICI Bank offers interest rates between 3.75% and 9.5%.

Download the spreadsheet containing detailed calculations for returns from a recurring deposit. You can change the values and find out the returns for your situation.

(You need to be logged-in to download the spreadsheet. Please take advantage of the free registration that takes less than a minute. To know the benefits of registration, please click here.)

Loan / Overdraft facility

Many banks provide the facility of a loan or overdraft against the amount accumulated in your recurring deposit account.

Funds transfer facility

Many banks also provide the facility of direct monthly transfer of funds from your savings account to your recurring deposit account.

Nomination facility

Most banks offer nomination facility for recurring deposit accounts.


Income Tax (IT) Treatment and Benefits

There is no income tax benefit available for a recurring deposit.

The investment in a recurring deposit is not considered for deduction u/s 80C. (Please read “Saving Income Tax – Understanding Section 80C Deductions” to know details of deductions available under section 80C).

Please note that sec 80C benefit is not available even if the recurring deposit is for a period of 5 years or more.

The interest earned on a recurring deposit is also taxable.

Usually, there is no tax deducted at source (TDS) for recurring deposits.

Is a recurring deposit a good investment for you?

A recurring deposit offers the advantages of a regular fixed interest investment: Safety of interest and principal, and predictability of returns.

At the same time, it has the disadvantage of a regular fixed interest investment: A rate of return that barely beats inflation.

Thus, you can invest in a recurring deposit if:

  • You are risk averse, and want to invest in safe avenues
  • Your capacity to save and invest is low


Recurring deposit versus Systematic Investment Plan (SIP)

Both recurring deposit and SIPs are designed for people who want to make small monthly investments. So, how does a recurring deposit compare with SIPs?

An SIP is a method of investing in mutual fund (MF) schemes. Thus, you can invest in equity, balanced, or debt MF schemes using an SIP.

Your return is always market linked when you invest through an SIP, and can keep fluctuating. The amount of return would depend on the type of investment (equity, balanced, or debt) and the performance of the MF scheme.

Compared to this, the return from a recurring deposit is known in advance, and is stable & fixed.

Thus, if you are risk averse, please invest in a recurring deposit.

But if you can take relatively more risks, please consider a Micro Systematic Investment Plan (Micro SIP) in a diversified equity mutual fund scheme, or a balanced scheme.

You can read more about it at “More on Systematic Investment Plan (SIP) and Micro SIP”)

Where can you open a recurring deposit account?

A recurring deposit can be opened at most branches of banks.

A recurring deposit can also be opened at a Post Office. (To know more, please to read “An introduction to Post Office (PO) Recurring Deposit Account”)

Download the spreadsheet containing detailed calculations for returns from a recurring deposit. You can change the values and find out the returns for your situation.

(You need to be logged-in to download the spreadsheet. Please take advantage of the free registration that takes less than a minute. To know the benefits of registration, please click here.)

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