A Recurring Deposit (RD) is a systematic savings tool where you deposit a fixed amount every month for a chosen tenure. The bank credits interest at a predetermined rate compounded quarterly, which is the standard for RDs in India. At maturity, you receive the total deposits plus accumulated interest.

Unlike FDs where you can choose the compounding frequency, RDs in India follow quarterly compounding as per banking regulations. Interest is calculated on the minimum balance between the 10th and last day of each month. The quarterly compounding ensures your money grows faster than simple interest but slower than monthly compounding.

RDs offer guaranteed returns and are safer than market-linked instruments. They typically offer 5-8% returns, lower than equity but higher than savings accounts. RDs suit short to medium-term goals (1-5 years). For longer horizons, FDs or mutual fund SIPs may be better. RDs are ideal for building an emergency fund or saving for a planned expense.

To get the best from RDs: choose tenures with the highest interest rates (often 1-2 year tenures offer the best rates), set up auto-debit to ensure timely deposits, avoid premature withdrawal penalties, consider splitting across multiple RDs for flexibility, and compare rates across banks and post office RD schemes.