Recurring deposits (RDs) are an investment instrument almost similar to fixed deposits. However, you have to make fixed monthly deposits in RDs, unlike a lump sum amount in FDs. RDs create a habit of regular investment among earning individuals. These also instil discipline when it comes to savings. Recurring deposits are offered by the majority of banks and financial institutions
What is RD?
RD or Recurring Deposits are an investment tool which allows investors to make regular monthly payments and save money for the long term. Investors can choose the tenure of the deposit and the minimum monthly payment they wish to make according to their convenience. RD schemes are generally more flexible than FD schemes and are generally preferred by those who want to start an account for the purpose of saving money and building a rainy-day fund.
How can an RD calculator help you?
A recurring deposit, as the name suggests, is a continuing investment. The returns on these deposits can be challenging to track for investors. The interest is compounded quarterly, and there are several variables involved, which makes the calculations multipart.
An RD deposit calculator eliminates the hassle of computing its returns manually and enables an investor to know the exact amount their deposits will accrue after the relevant period.
The only consideration that the investor has to do manually is the TDS deduction. As per new RBI norms, RDs are also liable for TDS deduction; however, there is no uniformity in its implementation across financial institutions, which is why RD calculators don’t take it into account.
Apart from that small caveat, an RD amount calculator offers an investor with the following advantages:
- The calculator enables investors to plan their future finances with greater clarity by providing them with the exact amount their investment will accrue.
- It’s convenient to use and saves a lot of time for the investors, which they can otherwise use productively.
- The accuracy of these calculators can never be in question. Accurate estimates are pivotal for prudent financial planning.
Formula to determine RD maturity
The formula for RD maturity is as follows:
A = P*(1+R/N)^(Nt)
The variables in this equation represent-
| A | Maturity Amount |
| P | RD Instalment each month |
| N | Compounding Frequency (no. of quarters) |
| R | RD interest rate in percentage |
| t | Tenure |
This is the standard formula used in the calculation of the RD maturity amount, regardless of the sum invested or tenure. All you need to do is put in the variables.
For example, an individual starts an RD account for an investment of Rs. 5000 per month for a tenure of 1 year, i.e. 4 quarters. The interest accrued on this account is 8%. The final maturity amount on this particular deposit is calculated with the following formula-
A = P*(1+R/N)^(Nt)
= 5000*(1+.0825/4)^(4*12/12) = 5425.44
= 5000*(1+.0825/4)^(4*11/12) = 5388.64
…
= 5000*(1+.0825/4)^(4*1/12) = 5034.14
By taking the sum of series, total maturity value, i.e. A = Rs 62,730.85
Solving this equation manually is no mean task. A recurring deposit calculator, on the other hand, will provide you with the exact number in mere seconds.
The maturity value for the depositor on the investment in RD is INR Rs 62,730.85
FAQs
Is TDS applicable on RD?
Yes. Effective from June 1, the Finance Bill, 2015, has made TDS mandatory for all recurring deposits. Note that it is applicable only to the interest accrued on the RD.
What is the minimum amount to start an RD account?
It varies from one financial institution to another. Typically, you may start an RD account with an amount as low as Rs. 500, and deposit the same amount every month throughout the tenure. On a similar vein, there is no limit on the maximum amount you may deposit.