RD Calculator
What is a Recurring Deposit (RD)?
A Recurring Deposit (RD) is a popular savings option offered by banks and financial institutions where individuals deposit a fixed amount every month for a specified period. It's an ideal investment avenue for those who want to inculcate a habit of regular savings and earn assured returns.
How Does an RD Calculator Work?
The RD calculator uses the following formula to calculate the maturity value:
- P = Monthly Deposit Amount
- r = Annual Rate of Interest (in decimal form)
- n = Number of times interest is compounded in a year
- t = Time Period in Years
Benefits of RD Investment
- Disciplined Savings Habit
- Assured Returns
- Low Risk Investment
- Flexible Tenures (typically 6 months to 10 years)
- Loan Facility Available Against RD
- Higher Interest Rates Compared to Savings Accounts
Who Should Invest in RD?
- Salaried Individuals looking to save regularly
- Conservative Investors preferring guaranteed returns
- People saving for short to medium-term goals
- Those wanting to build an emergency fund
- Individuals who want to inculcate a savings habit
Example of RD Calculation
Let's understand with an example:
- Monthly Deposit: ₹2,000
- Interest Rate: 5% per annum
- Compounding Frequency: Quarterly
- Time Period: 3 years
When you calculate:
- Total Investment: ₹72,000 (₹2,000 × 36 months)
- Interest Earned: ₹5,690.45
- Maturity Amount: ₹77,690.45
RD vs Other Investment Options
| Feature | Recurring Deposit | Fixed Deposit | Savings Account | PPF |
|---|---|---|---|---|
| Investment Type | Monthly Fixed Amount | One-time Lump Sum | Variable | Annual (Flexible) |
| Tenure | 6 months to 10 years | 7 days to 10 years | No specific tenure | 15 years (Extendable) |
| Interest Rates | Moderate (4-7%) | Moderate (4-7%) | Low (2.5-4%) | Relatively High (7-8%) |
| Liquidity | Moderate (Premature withdrawal allowed) | Low (Penalties on premature withdrawal) | High | Low (Partial withdrawals after 7 years) |
| Tax Benefits | No specific tax benefits | TDS applicable on interest | No specific tax benefits | Fully tax-exempt (EEE) |
Frequently Asked Questions
How is interest calculated on an RD?
Interest on RD is calculated on a quarterly compounding basis (in most banks). Each monthly installment earns interest from the date of deposit till the maturity date. The interest is calculated using the formula mentioned above, considering the number of quarters the money stays invested.
Can I withdraw money from an RD before maturity?
Yes, most banks allow premature withdrawal of RD, but they usually charge a penalty of 0.5% to 1% on the interest rate. Some banks may not pay any interest if withdrawn within 3 months of opening the RD.
How is RD different from FD?
In a Fixed Deposit (FD), you deposit a lump sum amount once for a specific period. In a Recurring Deposit (RD), you deposit a fixed amount every month for a predetermined period. RDs help inculcate a savings habit as they require regular monthly deposits.
Is RD interest taxable?
Yes, the interest earned on RD is taxable under "Income from Other Sources" as per your income tax slab rate. TDS is applicable if the interest earned in a financial year exceeds ₹40,000 (₹50,000 for senior citizens).
What happens if I miss an RD installment?
If you miss an RD installment, banks usually charge a penalty (ranging from ₹1 to ₹2 per ₹100 per month). Some banks allow a grace period of a few days to deposit the installment without penalty. If installments are missed frequently, the bank might close the RD account prematurely.