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A Recurring Deposit (RD) is a savings option where an individual invests a fixed amount of money on a regular basis, usually on a monthly basis. The investment period and interest rate are fixed in advance and the investor earns interest on the deposit at the end of the term. The amount invested in a RD is relatively low compared to other investment options, making it accessible to a wider range of individuals. This investment tool is designed to promote disciplined saving and provide an attractive return on investment.
The habit of saving a little each month through recurring deposits will compound over time to create substantial wealth.
Using RD calculator you can benefit in the following ways:
- Consistent savings: RDs encourage individuals to save a fixed amount of money on a regular basis, promoting disciplined savings behavior.
- Flexible tenure: The investment period is flexible, allowing individuals to choose a term that suits their needs and goals.
- Attractive interest rates: RDs generally offer competitive interest rates, higher than savings accounts.
- Safety of funds: RDs are considered a safe investment option as they are offered by banks and financial institutions, which are insured by the government.
- Loan collateral: RDs can be used as collateral for obtaining loans, providing additional financial security.
- Widely available: RDs are widely available through banks and financial institutions, making them accessible to a wide range of individuals.
- Minimal investment: The minimum investment amount is low, making RDs accessible even to individuals with limited resources.
- Tax benefits: RDs may offer tax benefits under certain conditions, making them an attractive investment option.
Fixed Deposits (FDs) offer a secure way to grow your savings. The interest rate on your deposit is determined by the length of your deposit (tenure) and the frequency of compounding interest. The calculation of interest on an FD is done using the following formula:
Our calculator takes four main factors into account:
- M is the Maturity Value
- R is the Monthly Installment
- n is the Number of quarters
- I is the Rate of interest/400
Interest on RD is compounded quarterly, in most banks. The formula for this is :
M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )
Here is an example for easy understanding:
Let us say Sudhanshu starts investing ₹50,000 in a recurring account for a tenure of 1 year (4 quaters).
The interest rate that his rd account offers is 6%. Now let us use the above formula to calculate the final maturity amount.
Maturity amount = 50,000*(1+ (0.06/4)) ((4*12)/12) = ₹ 53068.18
Maturity amount = 50,000*(1+ (0.06/15)) ((4*11)/12) = ₹ 52805.46
Similarly we need to calculate for all remaining months till 1 month
Caculation for 1st month look like this = 50,000*(1+ (0.06/15)) ((15*1)/12) = ₹ 50248.76
If you sum like above for all the months the total maturity amount that you will arrive at is ₹619,762
FAQs
A Recurring Deposit is a savings instrument where an individual deposits a fixed amount of money on a regular basis for a fixed term, earning a fixed rate of interest. The deposit is locked in for the term of the deposit and cannot be withdrawn until maturity.
The interest rate on Recurring Deposits is determined by the financial institution and may vary depending on the term of the deposit, the amount invested, and overall market conditions.
Interest earned on Recurring Deposits may be subject to income tax, depending on the investor's tax bracket. However, there may be tax benefits available for RDs under certain conditions, such as under the 80C section of the Income Tax Act for investments in tax-saving RDs.
Withdrawing a Recurring Deposit before maturity is possible, but it may come with a penalty, such as a reduction in interest earned. Financial institutions may also have specific rules and procedures for premature withdrawal.
Minors can open a Recurring Deposit account with the supervision and guardianship of their parents or legal guardians. Minors are not allowed to open FDs in their own names.
A Recurring Deposit Calculator is a tool used to estimate the maturity amount of an RD investment. It takes into account the deposit amount, tenure, and interest rate to calculate the maturity amount.
An RD Calculator works by taking the deposit amount, tenure, and interest rate as inputs and using a mathematical formula to calculate the maturity amount. The formula takes into account the frequency of interest compounding, which can affect the overall interest earned.
To use an RD Calculator, you will need to provide the deposit amount, tenure, and interest rate. Some calculators may also ask for the frequency of interest compounding.
RD Calculators are reliable as long as they are based on accurate and up-to-date information, such as current interest rates offered by financial institutions. However, the actual maturity amount may vary slightly due to changes in interest rates, taxes, and other factors.
Yes, an RD Calculator can be used for comparison purposes to compare the interest earned on different RD investments. You can use the calculator to compare the maturity amount and interest earned on different deposits with different tenures and interest rates.
