Recurring Deposit: How RD Maturity Is Calculated
How an RD works, the quarterly compounding convention, the maturity formula, a worked example, and why your bank's figure can differ a little.
In this article
A recurring deposit, or RD, lets you save a fixed amount every month for a set period and get it back with interest at the end. This guide explains how the maturity amount is worked out, the quarterly compounding rule most Indian banks use, a worked example, and why your bank's own figure may differ from a calculator's by a small amount.
How a recurring deposit works
Wikipedia's summary of recurring deposits says you deposit a fixed sum each month for a set period, and it earns interest at roughly the fixed-deposit rate. The payments can be automated through a standing instruction from your savings or current account. Because each instalment is paid in a different month, each one earns interest for a different length of time: the first for the whole tenure, the last for just one month.
The same page says that if an instalment is paid late, the interest earned ends up lower than projected and the shortfall is deducted from the maturity value as a penalty, at a rate fixed when the account is opened. So the calculator's answer assumes you pay on time.
Quarterly compounding
Wikipedia states that interest is compounded quarterly in recurring deposits, and that Indian banks use a quarterly-compounding formula for the maturity value, with the rate per quarter equal to the annual rate divided by 400. That is the annual rate divided by 4 quarters and by 100 to turn the percentage into a decimal. A 6.5% yearly rate is therefore 1.625% per quarter.
The formula
M = R × ((1 + i)^N − 1) / (1 − (1 + i)^(−1/3))- M is the amount at maturity.
- R is the monthly instalment.
- i is the rate for one quarter: the annual rate ÷ 400.
- N is the number of quarters. Twelve months is 4 quarters, so N is the months divided by 3.
This is the formula Groww's RD calculator page gives, with i as the quarterly rate and N as the number of quarters. The page's own worked example is ₹2,000 a month for 2 years at 7%, and it reports ₹51,640 at maturity. Our calculator gives ₹51,639.56 for the same numbers, which rounds to the same figure.
A worked example
Say you deposit ₹5,000 a month for 5 years at 6.5% a year. You put in ₹3,00,000 over the 60 months. The formula gives a maturity amount of about ₹3,54,954, so the interest is about ₹54,954.
A shorter one: ₹5,000 a month for 1 year at the same rate. You deposit ₹60,000 and the maturity is about ₹62,143, an interest of about ₹2,143. The interest is small in the first year because most of the instalments have only been in the account for a few months. And ₹10,000 a month for 3 years at 7% gives a deposit of ₹3,60,000, a maturity of about ₹4,01,373 and interest of about ₹41,373.
Why your bank's figure may differ
- Rounding. Banks may round at each step in a different way.
- Day counting. Banks can count the exact days between instalments instead of whole months.
- Rates. The rate is set by the bank and can differ with the tenure and for senior citizens. Check the current rate on the bank's own page.
- Tax. Interest from a deposit can be taxed. The formula does not include tax, and the rules change, so look at the current rules or ask a professional.
A bank's quoted maturity is the figure that counts. Use the calculator to compare options and plan, and then confirm the amount with the bank.
RD or FD?
A fixed deposit takes a lump sum on day one. An RD builds up from monthly savings, so it suits someone who earns monthly and wants to save steadily. If you already have the whole amount, a fixed deposit puts all of it to work from the start, which is why the same total produces more interest there. Our fixed deposit calculator will show the difference.
Common mistakes
- Entering the tenure in the wrong unit. 5 years is 60 months.
- Expecting the maturity to equal deposits plus a full year of interest on each. Later instalments earn for much less time.
- Forgetting that a missed or late instalment can reduce the amount you receive.
How to use the calculator
Enter the monthly deposit, the yearly rate and the tenure in years or months. The calculator shows the total you deposit, the interest earned and the maturity amount. Run it with your bank's quoted rate and compare the result with the maturity the bank shows you.
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