Recurring Deposits are a form of investment that is similar to fixed deposits. It differs from fixed deposits in the manner in which the money is deposited. FDs take in a lump sum amount while RDs accept fixed monthly deposits. Recurring deposits are a relatively low-risk form of investment and helps inculcate strong investment sense in the public. It offers higher returns than a savings account and is offered by all leading banks and financial institutions in the country.
When one is looking to start investing in a recurring deposit, it becomes difficult to understand how much to invest and how the rate of interest and the tenure of RD will effect their investment. This is when a recurring deposit calculator is used.
How to use a RD calculator
The step-by-step guide on how to effectively use a RD calculator is as follows:
- Open up the RD calculator webpage.
- There will fields to enter details like monthly deposit amount, rate of interest etc. that need to be filled up. Enter the monthly deposit amount. For example, the deposit amount is INR 2,000.
- Some calculators will have a rate of interest put in and some will have a scale where one can enter their own rate of interest. For our example, we are using the rate of interest as 7.5%.
- The last detail to enter is the tenure of the RD. The tenure range can be anywhere between a couple of months to up to 10 years. For our example we are using 2 years.
- Click ‘calculate’ and the maturity amount will be displayed. For our deposit amount of INR 2,000 at 7.5% interest rate for a period of 2 years, the maturity amount is INR 51, 936.
Eligibility for recurring deposits
A recurring deposit is open to anyone who fits the below eligibility criteria.
- An individual
- A minor who is above the age of 10 years if they can provide proof of their name.
- A minor who is below the age of 10 years if their legal guardian is with them
- A company, corporate, proprietorship or commercial organization
- A government organization.
Documents required to open up a recurring deposit
The documents list to open up a recurring deposit is not long and generally includes the following:
- Filled out application form that can be availed from the bank under which the RD is to be opened.
- Passport size photographs
- Identity proof like voter id, aadhar card etc.
- Address proof like utility bills, bank statements etc.
- KYC documents as and when the bank requires them.
How is recurring deposit interest calculated?
A good step in understanding how RD calculators work is to understand how recurring deposit and their interest rates work. The interest on RD is compounded quarterly by most banks and financial institutions. The formula to calculate maturity value of a RD is as follows:
M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )
M = Maturity Value
R = Monthly Installment
n = Number of quarters
I = Rate of interest/400
As evident by the formulae, manually calculating the maturity value would be a hard task and will take much time. This is when using a RD calculator will be extremely beneficial.
Benefits of investing in a recurring deposit
- Suitable for short tem investment goals: As opposed to mutual finds, whose performance is based on the market movement, recurring deposits are the best for short term-investment goals. Returns are guaranteed and it a risk-free form of investment. For cases like, planning an overseas vacation in a year or two, an RD is the perfect choice.
- Additional features: Most banks offer additional features for an online RD that make it a more attractive form of investment. The customer has full control over their RD including, opening a RD account, closing it, updating information, open another RD etc. can be done right from home.
- Better interest rates: Interest rates on RDs vary from bank to bank and is based on the investment tenure. Interest rates vary from as little as 7.25% to as high as 9%. One can use a RD calculator to figure out their returns based on the interest rates and decide on a bank to get the best interest rate and high return.
- Flexibility: Recurring deposits are a more flexible form of investment over other forms of investment. Some banks do not penalize the customer if the monthly deposit is done. Another aspect of its flexibility is the ability to withdraw the deposits anytime wanted.
- Better savings habit: Recurring deposits are a great way to learn better savings habits. One can put in as little as INR 1,000 each month in the RD account. Besides the benefit of getting the maturity value, regularly putting in an amount of money aside becomes a regular habit for the customers.
Tax implications of investing in a recurring deposit
Recurring deposits attract taxes like other investment instruments do. A TDS of 10% is deducted on the recurring deposit. The TDS is only deducted if the income from the interest is not more than INR 10,000 in one financial year. It is worth noting that only the interest income is taxable and not the maturity amount. Tax is to be paid as per the income tax slab. If the investor is not earning taxable income then Form 15G is to be filled out in order to avoid TDS on both RDs and FDs.
Recurring Deposit Interest rates and tenures from leading banks
The interest rate range and tenures, for recurring deposits, available at some of the leading Indian banks are as follows.
Up to 6.10%
1 to 10 years
Up to 5.40%
6 months to 120 months
6.25% to 7.50%
6 months to 10 years
7% to 7.60%
9 months to 10 years
6% to 7.05%
1 year to 20 years
6.25% to 6.75%
180 days to 10 years
6.50% to 6.75%
180 days to 10 years
Factors affecting RD interest rates
- Tenure: The time over which the RD is being made affects the interest rate. Interest rate will be different over different tenures.
- Age of the investor: Most banks and financial institutions provide different interest rates for senior citizens. This is why the minimum age criteria is different from bank to bank.
- Market conditions: Changes in the economy dictate any changes made to the interest rates. Reasons like RBI changes, inflation etc. reflect heavily on the interest rates of RDs’.