Recurring Deposit Calculator: A Unique Tool You Must Know About

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Recurring Deposit Calculator: A Unique Tool You Must Know About: One of the traditional and low-risk investment products, Recurring Deposit (RD), offered by banks, is a popular investment method these days.

Recurring Deposit Calculator
Source: Shutterstock

It is more popular among those who don’t fully understand the dynamics of the securities market and are looking for a safe and easy investment method.

As an investment tool, RD is highly effective in the sense that it promises moderate but assured returns. You can closely estimate the maturity benefit using a Recurring Deposit calculator online.

 How Does RD Work? 

You can start your investment in the deposit anytimewith a minimum RD amount ranging from ₹500-1000 (varies from one bank to another). In some cases, it can be as low as ₹10. All you need to do is invest this same amount every month till your decided tenure. Your pre-decided term can range anywhere from 6 months to 10 years.

When opening the account, the RD amount and tenure need to be keyed in. You can start your Recurring Deposit online or by physically visiting your branch.

You can operate your RD hassle-free from the comfort of your home and choose the option of automatically deducting the investment amount every month if you choose to operate it online.

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The monetary benefit, the interest you get on your RD amount, is credited at the end of the maturity period. The interest rate varies on the tenure for which you decide to make regular deposits. Since the return rate is transparently informed beforehand, investors can clearly have an idea about the interest they can earn. Most customers use a Recurring Deposit calculator to approximate the expected cash value.

Note that the interest rate varies between 5% to 8% depending on your chosen bank’s policies.

What is a Recurring Deposit Calculator and How to Use it?

It’s an online tool that eases the calculation for your maturity benefit credited at the end of the RD period. While manually computing it can be difficult, an online tool can simplify your return and interest accrued calculations.

Source: Shutterstock

Here’s the formula used to compute RD maturity:

A = P(1+r/n) ^ nt

A: Total Amount Credited

P: Monthly Principal 

R: Rate of Interest

N: No. of Quarters 

T: Total Duration

So, if the calculations seem complicated, use a Recurring Deposit calculator for an error-free return amount calculation.

Factors to Keep in Mind Before Opening a Recurring Deposit Account

Despite being the most popular investment product, it may not necessarily suit your requirements. So, to ascertain that an RD is for you, evaluate your need on the below-given parameters:

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Amount: Even though you can start your RD with an amount as low as ₹500, know that you can only increase it in the multiples of 100. Some banks have kept the lower limit to ₹1000. There is a large upper limit on the instalments. So, while the bracket is vast, a minimum limit on the RD instalment amount needs to be met.

Duration: As a depositor, you can select tenure between 6 months to 10 years for your RD account. The tenure varies from one bank to another. You will need to be patient to gain profit and enjoy the returns. 

Return Rate: The interest on the RD is computed at the end of each month. So, if we break it down, you basically are running multiple Fixed Deposit Accounts, each having the same maturity value. The return amount is credited at the end of the tenure. You cannot get monthly benefits, unlike a SIP investment in a mutual fund scheme.

The total amount you get in return is, in most cases, known to the depositor before the actual maturity date. It is because the interest rates and calculations on the RD amount are transparent. You may reckon the maturity amount using a Recurring Deposit calculator.

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Taxability on Interest: The interest accrued on an RD is taxable. It is per the Reserve Bank of India’s (RBI) guidelines following Income Tax Act, 1961. 

To understand it simply, any interest of more than ₹40,000 (₹50,000 in the case of senior citizens) is taxable. The bank will deduct TDS (Tax Deducted at Source) of 10% on the interest of your Recurring Deposit.

Withdrawing Amount: No policy allows you to withdraw your RD amount before it matures. Partial withdrawal is not permitted. So, if you want to use the amount urgently, know that you will not be able to. 

Remember to use a Recurring Deposit calculator to estimate the amount you can accrue over your desired tenure. If the amount collected at the end of the RD maturity meets your needs, go ahead with opening it.

In a Nutshell

Using a Recurring Deposit calculator will give you a better idea of the amount you would be accumulating at the end of the tenure; accordingly, you can make decision to start an RD. It gives an exact idea of the return you can expect and helps you plan your financial decisions better.

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