How to Calculate RD Interest: Formula and Example

Learning how to calculate rd interest helps you see what a small monthly deposit can grow into before you open a recurring deposit. A recurring deposit, or RD, suits savers who want to set aside a fixed sum every month instead of investing a lump sum at once. Because the bank adds interest every quarter, the balance grows a little faster than simple interest would suggest, and the final maturity value is often higher than people expect.

This guide explains the RD formula in plain terms, works through the example shown on the tool page, and answers the questions savers ask most often. To skip the manual maths, use our free RD Interest Calculator and enter your monthly deposit, rate and tenure to see the maturity value in seconds. The key point is simple: each monthly deposit starts earning interest from the month it is paid in, and quarterly compounding builds on the growing balance.

The Formula

RD interest is compound interest, not simple interest. That is the first thing to understand, because it changes how the total is worked out: interest earned in one quarter starts earning interest itself in later quarters. The formula used on the tool page is: Maturity value = P × [((1 + i)^n − 1) / (1 − (1 + i)^(−1/3))].

Each term is straightforward. P is the monthly deposit, the fixed amount you pay into the RD every month, for example Rs 5,000. The rate i is the quarterly interest rate, worked out from the annual rate: divide the annual rate by 400 to get the quarterly fraction, so for 7% a year, i = 0.0175. The number n is the total number of quarters in the tenure, so a 5-year RD has 20 quarters. The exponent −1/3 appears because deposits are monthly while interest is compounded quarterly, so each deposit earns interest for only part of a quarter at first. In short, the formula adds up the grown value of every monthly deposit, each compounded for the time it has been in the account.

Because the interest compounds, the maturity value is higher than the total of your deposits plus simple interest. The longer the tenure and the higher the rate, the bigger that difference becomes, which is why RDs reward regular, uninterrupted deposits.

How to Calculate RD Interest Step by Step

1. Write down your monthly deposit. This is the fixed amount you will pay every month, for example Rs 5,000.
2. Confirm the annual interest rate. Use the rate your bank offers for the RD tenure you have chosen, for example 7% a year.
3. Work out the quarterly rate. Divide the annual rate by 400: for 7%, the quarterly rate is 0.0175.
4. Count the quarters. Multiply the tenure in years by 4: a 5-year RD runs for 20 quarters.
5. Apply the formula to every deposit and add the results. The total is the maturity value, and subtracting your total deposits gives the interest earned.

Always keep the rate and the time in matching units. If you use a quarterly rate, count the tenure in quarters too, and do not mix a monthly rate with a yearly tenure, or the result will be far too high or too low.

Worked Example

Take the example shown on the tool page: a monthly deposit of Rs 5,000 at an interest rate of 7% a year for 5 years. Over 60 monthly deposits, you pay in Rs 3,00,000 in total.

Applying the quarterly compounding formula gives a maturity value of Rs 3,59,663.95. The interest earned is therefore Rs 59,663.95, which is the maturity value minus the Rs 3,00,000 deposited.

Try the same steps with your own figures. Doubling the monthly deposit to Rs 10,000 would double both the total deposited and the interest, while a longer tenure would raise the interest by more than the extra deposits alone, because compounding has more time to work.

Common Mistakes / Good to Know

• Treating RD interest as simple interest: RD interest compounds every quarter, so a simple-interest calculation will understate the maturity value.
• Forgetting that deposits are monthly but compounding is quarterly: the −1/3 exponent in the formula adjusts for this mismatch, so do not apply a plain quarterly compound formula to the whole balance.
• Stopping deposits midway: missed or late deposits reduce the balance that compounds, and banks may charge a penalty, so the maturity value will be lower than the example.
• Forgetting that RD interest is taxable: RD interest is taxed at your income-tax slab rate, and banks deduct tax at source when interest crosses the threshold, so the figures in this guide are before tax.

One more point worth remembering: RD tenures and minimum deposits vary by bank, and the rate you start with may not apply to a new RD opened later, since banks revise their rates from time to time. Always confirm the current rate and terms before opening an account, because a guide can only reflect the position at the time of writing.

Frequently Asked Questions

For a lump-sum option for senior citizens, try our SCSS Calculator. And for the full method behind a quarterly payout scheme, read SCSS Interest Calculation: How the Interest Is Worked Out.