How the maturity value builds
Each monthly installment is treated as its own small deposit, earning interest only from the month it is paid until maturity. Your first installment earns for the full term, the last for barely a month. The maturity value is the sum of all those individual growths, conventionally compounded quarterly.
This is why a recurring deposit returns less than a fixed deposit of the same total amount. Depositing 5,000 a month for 60 months puts in 300,000, but most of that money has been on deposit for far less than five years.
Recurring deposit versus SIP
Both invest monthly, but a recurring deposit gives a guaranteed return with no market risk, while a SIP into market funds offers higher expected returns with real volatility. Use a recurring deposit for goals within about three years where the amount must be certain, and a SIP for goals far enough out to ride out downturns.
Frequently asked questions
What compounding do recurring deposits use?
Quarterly compounding is the standard convention and is what this calculator applies. Individual banks may vary slightly in how they treat partial quarters.
What if I miss a monthly installment?
Most banks charge a small penalty and may extend the maturity date. Repeated misses can lead to the account being closed with interest recalculated at a lower rate.
Is recurring deposit interest taxable?
Generally yes, as ordinary income. Results here are before tax.
Can I withdraw early?
Usually yes, with a penalty of roughly 0.5 to 1 percentage point on the rate, and interest paid only for the period completed.
Is a recurring deposit better than saving in a bank account?
Usually, because deposit rates exceed savings account rates and the commitment enforces discipline. The tradeoff is reduced flexibility.
Should I choose a longer tenure for a better rate?
Longer tenures often carry higher rates, but only commit for a period you can genuinely sustain. Breaking early erases much of the advantage.