The Buyt Desk
Thinking of regular investment but don’t have a lump sum to invest in one go? Recurring Deposit (RD) is a unique term deposit that can help you in starting your investing in instalments.You can make regular deposits and earn interest on the amount till the pre decided maturity. It is one of the best investment plans for salaried people because of the various advantages it offers. RD serves a dual purpose in investment its makes you save and help you to earn interest at the same time.
What Is a Recurring Deposit?
It is a term deposit that various government and non-government banks offer. You can open an RD account in a post office too. It helps people by letting them deposit a fixed amount every month and earn interest on that. Usually, the RD interest is the same as a fixed deposit but leverages a depositor to deposit the sum monthly instead of one go.
Benefits of Recurring Deposit
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Recurring Deposit Scheme develops a habit of saving in people.
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The minimum deposit varies from bank to bank. One can open RD with a minimum amount of Rs.10.
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The minimum period for a deposit is six months, and the maximum period is ten years. Post Offices offer RD of 5-year tenure.
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The rate of interest for RD is equal to bank fixed deposit rates but sometimes the post office offers higher interest than bank FDs.
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It offers an additional benefit of availing loan against the deposit, the deposit corpus acts as collateral. Investors could take up to 80-90 per cent of the loan against the deposited value.
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The recurring Deposit scheme offers a guaranteed return on the deposited principal amount. For this reason, it is considered a better option than mutual funds and equity.
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The RD provides an anytime withdrawal facility to depositors. The bank charges a nominal amount as a penalty in premature withdrawal of the amount.
How Is Interest Calculated In Recurring Deposit?
The formula for calculating RD interest is
I={{P*n(n+1)r}/{12*2*100}}}
In this formula,
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‘I’ stands for rate of interest. Interest is calculated using this formula.
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‘n’ stands for the number of months.
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‘r’ stands for the rate of interest per annum.
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‘P’ stands for the principal amount.
There is a different formula for calculating the maturity amount. It is:
M = P(n)+I
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M stands for the maturity amount that depositors would receive at the end of the maturity period.
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P(n) stands for the principal amount deposited.
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I stand for the interest that the depositor would receive on the recurring deposit account.
You could easily calculate the return of RD as many websites are providing RD Calculator. Depositors could use the same to calculate the maturity amount by entering basic details.
Recurring Deposit is a saving scheme for people who look for a safe and secure plan that provides an assured return. It is also a kind of saving scheme for low-income and middle-income groups. People could save a good corpus for the future by saving a small amount every month through RD.
