Table of contents
- RD Calculator
- Features of Recurring Deposit
- Benefits of Recurring Deposit
- Advantages of using RD Calculator
- How is RD Interest Calculated?
- How to Use the RD Calculator
- Factors affecting RD Interest Rates
- Recurring Deposit Taxes
- Factors to consider before opening RD Account
- Eligibility Criteria for Recurring Deposit
- Documents Required for Recurring Deposit
- Recurring Deposits for NRI/NRE
- Why is it beneficial to invest in Recurring Deposits (RD)?
- What are the main differences and advantages between RDs and other investments?
- Frequently Asked Questions on Recurring Deposit
|Bank Name||Tenure (years)||RD Rate|
|India Post (post office)||1||6.90%|
|India Post (post office)||5||7.30%|
|SBI (State Bank of India)||1||6.80%|
|SBI (State Bank of India)||5||6.85%|
Average yearly return of top performing debt mutual funds recommended by Scripbox
Recurring Deposit (RD) is a savings option that helps save for the future. In a RD people can save a small amount regularly for a predetermined period and earn interest on those deposits. Once the deposit matures the lump sum and interest is paid back. Determining the amount one can earn through investing in a RD is easy as the interest rate is fixed throughout the tenure of the RD. It doesn’t change unlike some investment products.
Interest rate on RD vary from bank to bank. The interest rate lie in the range of 3.5-8.5% for different time periods. The interest rate for senior citizens RD account is slightly higher than the regular accounts. Most banks offer an additional rate of 0.25%-0.75% for senior citizens. The interest on RD is compounded quarterly. Any individual, HUF, corporate, company, NRI, government organization, minor above age of 10, and minor below age of 10 under a legal guardian can open a RD account.
Most banks also offer flexi RD. In this the investor can invest a flexible sum of money in each interval depending on his/her convenience. The bank allows the depositor to select a core amount which will the basic investment in each interval and the investor can invest in the multiples of core amount in each interval.
Features of Recurring Deposit
- RD’s inculcate a regular habit of saving money.
- The minimum amount to start a RD is as low as Rs 10. This can vary from bank to bank.
- The minimum tenure of an RD is 6 months and can extend to 10 years.
- RDs offer a higher rate of interest than a savings bank account. Also, RDs offer higher rates for senior citizens.
- Premature withdrawals are not allowed for RDs. But in some cases banks do allow pre mature withdrawals at some penalty.
- One can take a loan against an RD by using the deposit as a collateral and get 80-90% of the deposit as loan.
- A RD can be funded regularly by giving standing instructions to the bank to automatically credit the RD account from their Savings or Current Bank account.
Benefits of Recurring Deposit
Investing in RDs will give a guaranteed return making it an attractive investment option. Apart from this it has the following benefits.
RD is a simple investment product making it easy for new investors to understand it. By investing in RDs one can inculcate a habit of investing and saving regularly.
RDs can be an investment product for any term – short, medium or long. The minimum tenure starts from 6 months and goes up till 10 years. Also, the minimum investment amount is usually Rs 10 for some banks. But mostly for public sector banks it is Rs 100 and for private banks it is usually Rs 500 - Rs 1000.
RDs are highly liquid. One can withdraw the amount from an RD anytime they want but they will be charged a small fees for the same by the bank.
One can take a loan against their RD deposit and get 80-90% of the deposit value as loan. RDs have a flexi option where one can invest varying amounts at each period (more than the minimum amount) based on their convenience.
Advantages of using RD Calculator
Recurring Deposit (RDs) is an investment instrument that requires regular monthly fixed deposits for a pre-determined time and earns an interest rate. Once an RD matures, a lumpsum amount plus interest paid back to the investor. They are similar to fixed deposits but with regular investing. They inculcate the habit of monthly savings and financial discipline among investors.The interest rates on RD differ from bank to bank. For senior citizens, the interest rate tends to be higher than regular RDs. The interest is compounded quarterly. The minimum amount of investment for an RD is INR 10 and can vary from bank to bank. The minimum tenure is six months and goes up to 10 years. Premature withdrawals are allowed at a penalty. Investors can take a loan against an RD to get 80-90% of the RD amount. Calculating the interest from RD can be tedious and time taking. Hence a Recurring Deposit calculator is introduced by many portals online. Below are few benefits of Recurring Deposit calculator
Easy to useRD calculator is very easy to use. All one has to do is insert values of the monthly deposit, the RD rate, and the number of years of investing. The calculator gives back the maturity amount accurately.
Using an RD calculator can save an investor's valuable time. It performs complex calculations in a matter of seconds. It eliminates the trouble the investor has to go through due to manual calculations.
The calculator is very accurate, and there is no chance of error if the inputs are given correctly.
The calculator enables the investors to plan their future with excellent precision as the calculator returns the exact value their investment will reap.
Banks and financial institutions offer RDs. Using an RD calculator, investors can compare the maturity values of multiple RDs in a matter of seconds.
Free to use
The RD calculator is free to use, and the investor can use it multiple times to calculate the returns from RDs in different tenures and interest rates.
How is RD Interest Calculated?
To make an investment decision, it is essential to get an estimate of the returns that can be earned. RD interest calculator will help an investor in estimating the expected returns.
Financial Quarters for Recurring Deposit:
Quarter 1: April to June
Quarter 2: July to September
Quarter 3: October to December
Quarter 4: January to MarchInterest in RD is compounded quarterly. Until then, it is calculated as simple interest. For example, when an investor starts their RD in the month of February, the amount will earn only simple interest until the month of March. Only after the first quarter, the interest starts compounding. To calculate the maturity value of an RD, the following formula is used.
Where, M = Maturity value
R = Monthly Instalment
N = number of quarters (tenure)
i = Rate of interest/400Monthly Instalment (R):
This is the amount that is invested in the RD account every month. The minimum deposit amount varies for every bank and can be as low as Rs 10.Rate of Interest (i):
The amount of interest earned depends on the amount deposited in the RD account, the interest rate offered by the bank, and tenure of RD.Tenure (N):
It is the duration for which money is held in the RD account. Generally, RD tenure varies between 6 months to 10 years.Let's take an example of Arun, who is planning to invest INR 5,000 every month at 8% interest p.a. for 24 months or eight quarters. When we insert these values in the formula we get,
The maturity value for Arun on his investment in RD is INR 1,26,369.
The calculation might look simple but is not. Hence one can use an RD interest calculator to save time and get accurate results.
How to Use the RD Calculator?
Using a Recurring Deposit calculator can make your calculations effortless. Using it is very easy, and the results are very accurate. Investors can save much time using it for calculating maturity amounts from RDs and can also use this to compare multiple RDs. By utilizing an RD calculator, an investor can plan his/her finances with clarity as they will know the exact maturity value from the investment in RD.
Investors need to follow the following steps to use the RD maturity calculator.
Enter the monthly deposit amount the investors wish to invest.
Next is to enter the term of investment in years. Use the slider to enter the tenure.
The last step involves entering the interest rate of the RD. Use the slider to enter the interest.
The RD maturity calculator now returns the initial investment, wealth gained, and total corpus created both in numeric and graphical formats.
From the above picture, the initial investment is the total of the monthly investment done by the investor in 3 years. The wealth gained is the return the investor earned during the tenure. The total corpus is the maturity value of the RD that will get credited to the investor's bank account at the end of the term.
On the graph, the value of the investment is on Y-Axis, and the tenure is on X-Axis. The investment is indicated with the blue line and the final value with the green line.
Investors can calculate the returns from multiple RDs within seconds using the RD calculator.
Factors affecting RD Interest RatesInterest rates for recurring deposits change from time to time. RD interest rates are affected by multiple factors. A few of the important ones are explained below.
RBI PoliciesRBI decides the cash reserve ratio (CRR) and repo rates. Repo rate is the interest at which RBI lends money to other banks. Every time this rate reduces, it implied that other banks could borrow at a lesser interest rate. This is passed on to the customers as well. Therefore, these affect all banking rates, including RD rates.
In times of recession, with RBI efforts to increase liquidity in the market, the banks reduce RD rates as a result of low credit demand.
Inflation has a positive impact on interest rates. RD rates tend to be higher during the rising inflation period.
The current state of the economy
Institutions offering recurring deposits keep updating their interest rates based on the economic changes in the country. Reasons like inflation, repo rate changes, etc. affect the RD interest rates. Therefore, the prevailing economic conditions play a crucial role in determining RD interest rates. For example, in the booming economic phase, banks tend to increase RD rates to get more funds from depositors.
Tenure is the duration for which an investor invests money in a recurring deposit account. RD interest rates vary across tenure options. The tenure of an RD affects RD interest rates.
Age of the applicant
Banks offer higher rates of interest on RDs to senior citizens. They may get an additional 0.50% to 0.75% on existing RD rates. The age criteria of senior citizens vary from bank to bank.
Rating of the issuer
The rating of the issuer has a significant impact on the maturity amount. Banks and financial institutions issue RD. These institutions that issue the RD are rated by credit rating agencies. While investing in a bank's RD is safe, a company's RD might not be that safe. When investing in a company RD, it is essential to check its ratings. Company recurring deposits with a rating of FAAA, FAA is considered safe. Hence, these have a low-interest rate than corporate fixed deposits.
Recurring Deposit Taxes
Interest earned on RDs is taxable. Amount of TDS depends on the tax slab the investor falls in.
For annual income less than Rs 2.5 lakhs the TDS of 10% is applicable if the interest earned exceeds Rs 10,000. One can claim a refund on the TDS paid by submitting form 15G to the income tax department.
For annual income within the range of Rs 2.5 lakhs and Rs 5 lakhs the TDS of 10% is applicable if the interest earned exceeds Rs 10,000.
For annual income within the range of Rs 5 lakhs and Rs 10 lakhs, if the will be liable to pay a tax of 10.3% as the bank will deduct only 10% TDS if the interest earned exceeds Rs 10,000.
For annual income within more than Rs 10 lakhs, if the person will be liable to pay a tax of 20.3% as the bank will deduct only 10% TDS if the interest earned exceeds Rs 10,000.
Factors to consider before opening RD Account
While recurring deposit is a safe investment option and return on investment is mostly guaranteed, its is advised to consider the following factors before investing in a recurring deposit account.
Interest Rates Offered: interest rate offered by banks varies from bank to bank over different term periods. The interest rate offered to a recurring account holder by various banks generally ranges from 3.5% to 8.5% p.a. Return rates vary according to the selected deposit tenure. The rates are usually the highest for medium - term deposits. The rates are usually slightly lower for long - term deposits as the holder of the deposit stands to gain a higher overall interest.
- Term Period: Recurring Deposit term periods are divided into three categories:
- Short-Term Tenure: A tenure that lasts from 6 months to 1 year.
- Medium-Term Tenure: A tenure that lasts from more than 1 year to 5 years.
- Long-Term Tenure: A tenure that lasts from more than 5 years to 10 years.
The right way to invest in a recurring deposit account is by identifying the shortest term period plan that offers high rate on interest.Facility of Premature Withdrawal:While choosing the right recurring deposit, investors should consider liquidity as it is one of the most important factor. RD comes with premature withdrawal facility, but it will require the investor to pay premature penalty. Therefore, while investing choose that charges a low fee on premature withdrawal and offers high rate of interest.
Eligibility Criteria for Recurring Deposit
- Any individual.
- Any minor over 10 years of age may open a recurring deposit account if he or she provides proof of his or her name.
- Any minor who is below or equal to 10 years of age under the guardianship of natural or legal guardian.
- Any corporate, company, proprietorship or commercial organization.
- Any government organization.
Documents Required for Recurring Deposit
- Bank application form
- Passport size photographs
- Identity proof
- Address proof
- KYC documents if the bank requests for it.
Recurring Deposits for NRI/NRE
NRIs can either invest in either NRO or NRE Recurring Deposit accounts.
1. NRE RD Accounts: An NRE is a non-resident external account that exempts the accrued from tax in India. You can also move this account back to the home country of the investor without any hassle. In this, monthly installments are credited to NRE account.
2. NRO RD Accounts: NRO is a non-resident ordinary account. Investments in deposit installments may come from NRE or NRO accounts for these accounts. NRO RDs interest is taxable at a rate of 30 %, plus the additional CESS. This can be repatriated, subject to certain pre requisites.
Why is it beneficial to invest in Recurring Deposits (RD)?
Investing in RDs have the following benefits.
- Investors can earn guaranteed returns at the end of their tenure. Senior citizens can earn higher interest than others.
- They inculcate the habit of regular savings and financial discipline among investors.
- The minimum investment of an RD is INR 10 for some banks, and there is no limit on the maximum amount.
- The minimum tenure for an RD is six months and can go up to 10 years. Hence, RD can be a short, medium, and long term investment instrument.
- RDs are highly liquid. They allow premature withdrawal at a penalty.
- Investors can take a loan against an RD and get 80-90% of the deposit amount as a loan.
What are the main differences and advantages between RDs and other investments?
Comparing RDs with FDs is fair as they both are considered risk free investment options available for investors.
1. The primary difference between RD and FD is that the style of investment. In an RD, a certain sum of money can be invested monthly for the entire investment tenure. In an FD, a fixed amount is invested at the start of the tenure.
2. An FD can earn more money than an RD, and the difference is will only increase with the increase in the tenure. This is because, in an FD, a lumpsum investment is made for the entire term and hence earn more interest. In an RD, the deposit is made monthly. And thus earn less interest.
3. Investors who want to save small portions of their income regularly can invest in RD. Investors with a lumpsum amount can invest in FD.
Frequently Asked Questions
Recurring Deposit (RDs) is an investment instrument that requires regular monthly fixed deposits for a pre-determined period and earns an interest rate. Once an RD matures, a lumpsum amount plus interest paid back to the investor. They are similar to fixed deposits but with regular investing.
You can open recurring deposit account in almost all banks including HDFC bank, SBI bank, ICICI bank etc. You don't need to open new account in order to start RD, go to your bank and ask them to open RD account.
Yes, tax can be saved on recurring deposits if the money is deposited for a medium-term or long-term tenure in the recurring deposit account.
Yes, the interest earned from a recurring deposit is taxable.
Yes, TDS of 10% is applicable on the interest earned. If the interest earned on the recurring deposits exceeds Rs.10,000, the TDS will be deducted.
The minimum tenure for Recurring Deposit differs from bank to bank. For a minimum tenure of 6 months or 12 months, most banks offer RD schemes.
Minimum Deposit amount varies for every bank and it can be as low as Rs.10.
Yes, banks generally offer slightly higher rate of interests than the normal deposits. Usually, banks offer 0.25 percent to 0.75 percent more interest than normal RDs.
Yes, you can withdraw your Recurring Deposit before the term is over. However, you have to bare the penalty that comes with premature withdrawals.
Yes, you can add nominees in your Recurring Deposit account.
A depositor should submit a request to the bank requesting the recurring deposit account's premature withdrawal. The interest is earned only for the tenure for which the money was held in the account.
Can I make partial withdrawals from my RD account?
A delay of even one day in your instalment payment, will either have interest penalty or cash penalty. Either ways, there will be an affect on your maturity amount. If you have more than 6 outstanding instalments, some banks reserve the right to close the RD account.
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