Recurring deposit vs FD in Nepal: the math for monthly savers
A 5% recurring deposit does not pay like a 5% FD. The real effective return is roughly half, because your money isn't in for the full term. Here's the math, with current rates.
A reader set up a recurring deposit last year: Rs 5,000 every month into a scheme advertised at 5%. Twelve months later he did the obvious mental math, 5% of the Rs 60,000 he had put in, and expected about Rs 3,000 in interest. The bank credited him closer to Rs 1,600. He assumed he had been short-changed.
He hadn't. A recurring deposit and a fixed deposit at the same headline rate do not pay the same, and the gap is not small. Understanding why is the difference between picking the right monthly-savings tool and quietly losing half the return you thought you were getting.
What a recurring deposit actually is in Nepal
Before the math, the product. An RD is a standing monthly commitment: you deposit a fixed amount every month for a set tenure, and the bank pays interest, compounded and credited at maturity.
Most commercial banks offer one, often under a marketing name. Prime runs a Recurring Deposit, Everest has the Sunaulo Bhawishya Yojana, Laxmi Sunrise and Machhapuchhre both have plain Recurring Deposits, Himalayan sells a 3-Year Recurring Deposit, Siddhartha has the Goal Saver, and Agriculture Development Bank offers a Recurring Fixed Deposit. A telling detail: many of these pay "as per the prevailing FD rate," so the RD is not a separate higher-yielding product. It is the FD rate applied to a drip of monthly deposits. Everest's Sunaulo Bhawishya takes a minimum of Rs 500 a month over a 12-to-60-month tenure; across banks the minimum runs Rs 500 to Rs 1,000 and tenures stretch from one year to twenty.
Current rates: RD and FD side by side
Rates as of FY 2082/83, from bank product pages and rate-comparison portals. Treat these as a snapshot; NRB requires banks to publish each month's rates before the Nepali month starts and not change them mid-month.
| Product | Indicative rate (FY 2082/83) |
|---|---|
| Recurring deposit (commercial banks) | ~3.25% to 5.15% |
| Individual FD (commercial banks) | ~2.85% to 5.5% |
| Individual FD (development banks) | ~2.75% to 6.0% |
| Individual FD (finance companies) | ~3.0% to 5.75% |
| Average personal FD (Mangsir 2082) | ~5.03% |
Two structural rules sit behind these numbers. NRB requires individual FD rates to be at least one percentage point above institutional rates (it relaxed this from a two-point gap), and the FY 2082/83 interest-rate corridor runs from a 2.75% deposit-collection floor to a 6.0% bank-rate ceiling, which is why deposit rates cluster where they do. Picking between banks on more than the rate is the subject of how to choose a savings account.
The math that surprises everyone
Here is the worked example, and it is the whole point of the post. The arithmetic below is mine, run at a flat 5% to keep it clean.
A lump-sum FD of Rs 60,000 at 5% for one year earns the full rate on the full amount:
Rs 60,000 × 5% = Rs 3,000 gross interest.
A recurring deposit of Rs 5,000 a month for twelve months also totals Rs 60,000 contributed, but each installment earns interest only for the months it is actually in the account. The first Rs 5,000 earns about twelve months; the last earns about one. Add up all twelve:
Rs 5,000 × (5% ÷ 12) × (12 + 11 + ... + 1) = Rs 5,000 × 0.4167% × 78 = ≈ Rs 1,625 gross interest.
| Lump-sum FD | Recurring deposit | |
|---|---|---|
| Total contributed | Rs 60,000 | Rs 60,000 |
| When the money is in | All of it, full year | Drips in over the year |
| Gross interest at 5% | Rs 3,000 | ≈ Rs 1,625 |
| Effective return on total contributed | 5.0% | ≈ 2.7% |
Same rate, almost half the interest. The RD's effective yield lands near 2.7% because, on average, your money was only in the account for about half the year. This is not a trick by the bank; it is just how a drip works. A "5% RD" is honestly advertised, but the 5% applies to each installment's time in the account, not to your total contribution for the full term.
Why that is the wrong comparison anyway
The RD-versus-FD framing is unfair, because the two answer different situations.
If you have Rs 60,000 in hand today, there is no contest: put it in an FD and earn the full Rs 3,000, or ladder it to stay liquid. Nobody with a lump sum should choose an RD.
But the monthly saver does not have Rs 60,000. He has Rs 5,000 a month and the question of where to put it. Against the alternatives he actually faces, the RD looks fine:
| What you do with Rs 5,000/month | Roughly what you have after a year |
|---|---|
| Leave it in your wallet / current account | Rs 60,000, often less after it gets spent |
| Park it in a 2.5% savings account | ≈ Rs 60,800 |
| Recurring deposit at 5% | ≈ Rs 61,625 |
The RD's edge over a savings account is modest in rupees, but its real advantage is behavioural: the standing instruction moves the money before you can spend it, which is the same logic behind how much you should save from your salary. For pure discipline, an RD does a job a savings account does not.
The serious competitor to an RD is not the FD at all. It is a monthly mutual fund SIP, which applies the same automated drip but aims at equity-linked returns over years, with more risk and no Rs 5 lakh guarantee. RD for a near-term goal with capital safety; SIP for a long horizon where you can ride volatility.
The fine print that decides it
A few rules that change the calculation at the edges.
Interest on both RD and FD faces a final withholding tax for individuals, deducted at source. The figure is commonly cited as 5%, though the statute text points to 6%; the tax on FD interest post walks through the mechanics. Either way it shaves the net return, so the ~2.7% effective RD yield is a touch lower after tax.
On safety, the Deposit and Credit Guarantee Fund insures up to Rs 5 lakh per depositor per bank, covering savings and deposits combined. That guarantee is why a bank RD at 5% is not the same animal as a cooperative offering 13%: cooperative deposits sit outside the DCGF guarantee, so the higher rate carries real principal risk.
On early access, breaking an FD costs you 1% to 3% off the rate for the period held, plus often a notice period; RD products allow premature withdrawal but rarely publish the penalty. Before breaking either, remember a loan against the deposit lets you borrow up to 90% of its value while it keeps earning.
What you actually need to know
Three takeaways:
- A 5% RD is not a 5% FD. Because your money drips in, the effective return on total contributions is roughly half the headline rate, about 2.7% on a 5% scheme. Read the rate as "per installment per month," not "on everything for a year."
- Match the tool to your situation. Got a lump sum? FD, every time. Saving monthly from scratch? An RD beats a wallet or a 2.5% savings account and forces the discipline. Saving for the long run and able to stomach risk? A SIP, not an RD.
- Mind the fine print. Final TDS on interest, a Rs 5 lakh DCGF guarantee per bank, and a real penalty for breaking either deposit early. The higher cooperative rates sit outside that guarantee, which is the whole risk.
Trying to decide between an RD, an FD ladder, and a SIP for a specific monthly amount? Email parjanya57@gmail.com with the amount and the goal date and I'll run the three side by side.
This post is part of the Nepal Money Basics guide — the saving section.