Recurring deposit, also commonly known as RD, is a distinctive term deposit offered by Indian banks. Recurring deposits are an investment tool that allows an individual to make regular deposits and earn sufficient investment returns. An RD is best for the ones who prefer to invest in small amounts.
They are an advanced version of fixed deposits that allow you to save bit by bit and get the interest for the outstanding balance. However, once you deposit the recurring deposit amount, it cannot be withdrawn until the time of maturity. To calculate the returns and interest on these, you can use an RD calculator. Moreover, in recurring deposits, income tax has to be paid on the interest amount received.
Features of Recurring Deposit Account
- RD savings aim at a regular habit of saving in individuals.
- The minimum number of deposits often varies from one bank to another. The least you could invest is INR 1000.
- The minimum period of RD is six months, whereas the maximum is ten years.
- The ROI is equivalent to that offered for a fixed deposit.
- Premature withdrawals depend on bank to bank and might allow you to do so on certain conditions.
Important Factors to Consider Before Applying for Recurring Deposits
- The Interest Rate Offered
The interest rates offered on recurring deposit account vary from bank to bank on different term periods. The interest rate offered by different banks ranges from 2.90%-7.25%. The ROI is higher for medium-term deposits, and for long-term deposits, the rates are slightly lower.
- Term Period of RD Account
There are three-term periods, short-term tenure, medium-term tenure, and long-term tenure. A short-term usually lasts from 6 months to a year; a medium-term last from more than a year to 5 years, and a long-term lasts from 5 years to 10 years.
- The Facility of Premature Withdrawal in the RD Account
All banks, along with the facility of opening an RD account, also provide the facility for premature withdrawals. For a premature withdrawal, there is a penalty to be paid. Therefore, when you think about investing in a recurring deposit account, choose a bank that offers a high-interest rate and charges a low fee on premature withdrawal.
What is an RD calculator?
An RD calculator is an online tool that can help determine the amount of money the depositor will receive at maturity. Various banks and third-party websites provide the RD calculator facility where you can determine the amount you will receive at the withdrawal time. The RD calculator is simple and gives quick results. It saves time and removes the burden of long and messy calculations.
Here is How You Can Use an RD Calculator and How it Can Rescue You
Once your recurring deposit amount matures, you can avail the amount of money determined by an RD calculator. An RD calculator can help you determine that sum of money in no time and is hassle-free. The interest generated from RD is compounded quarterly. The formula used by banks to determine an RD interest rate is:
A = P*(1+R/N)^(Nt)
A = Maturity Amount.
'P' = Monthly recurring deposit instalment.
'N' = interest rate compounding factor
‘R’ = Recurring deposit interest rate in percentage.
Advantages of Using an RD Calculator
Let us go through some of the key advantages of using an RD calculator:
- Provides accurate estimations and eliminates any chance of error
- Convenient and time-saving since it calculates complex calculations in a fraction of a second
- Helps in planning your finances in the long run with excellent precision
- Using the RD calculator, investors can compare the maturity value of multiple RDs in a fraction of a second
- RD calculator is free to use and can be used multiple times to determine the returns from RDs in various tenures and interest rates
Tips for Using the RD Calculator in the Right Way:
- Choosing the right calculator
For accuracy, one must use an RD calculator from a trusted and authentic source.
- Calculation of Maturity Amount
The maturity amount that the investors get is a little complicated for individuals. Thus RD calculators come to the rescue in such situations. With the help of this calculator, you can determine the amount that will be incurred at the time of maturity. Thus, it is wise to use an RD calculator to examine the prospective returns on the investments.
- Minimum Monthly Instalments
RDs are a flexible investment mode with minimal risk and high returns. But few banks and financial institutions have predetermined minimum monthly instalments that the depositors must pay regularly.
Since the RD calculator does not consider the TDS while determining the output, investors must calculate TDS manually.
Therefore, recurring deposit amount is considered a stable financial investment with potentially higher returns. Thus, by using an RD calculator, you can always compare the performances of various other investment schemes for the same amount and then make a wise decision. Moreover, depositors can use this calculator and avail themselves of the benefits mentioned above. Since the accuracy of these calculators can never be questioned thus, it is very helpful in financial planning and provides great clarity to the depositor.