Recurring Deposit or RD is a financial tool for investment. Here, you can invest an amount regularly every month, and build a fund for a long-term use. An interest rate will apply on the deposit. The interest amount will be added to the amount deposited to form the final maturity amount. The Recurring Deposit interest calculator helps you to calculate the maturity value. It involves a simple formula to calculate the interest. The interest is compounded on a recurring deposit only after adding the amount in the first quarter.
In this post we will discuss about latest RD interest rates, things to keep in mind when calculating RD maturity value, financial quarters in a year, factors impacting the rates, simple interest and compound interest calculation on the deposit, simple interest formula, RD interest calculation formula, illustration, RD maturity value calculator online, and frequently asked questions.
Here is a list of RD rates by banks and financial institutions:
Before calculating the RD interest, keep the following aspects in mind:
Quarter 1: April to June
Quarter 2: July to September
Quarter 3: October to December
Quarter 4: January to March
Here are the things to consider to decide the recurring deposit interest rates:
As the compounding is done only after completion of the first quarter, the interest calculation until then will be based on simple interest method. In case a person plans to avail the RD scheme from the month of February, then the simple interest will be applicable from the same day until March followed by compound interest thereafter.
The simple interest formula:
I = P X R X T
I = Interest
P = Principal
R = Annual interest
T = tenure or the time period of scheme
As per the Indian Bank Association, the recurring deposit interest formula is as follows:
M = R[(1+i) ^n-1]/(1-(1+i) ^ (-1/3))
Here is a breakdown:
M = Maturity Value
R = Monthly instalment
I = rate of interest/400
N = number of quarters
If a person is investing Rs. 1000 from January, then using the simple interest and compound interest formulas, he will benefit with Rs. 12,801.9 at the end of the year on an interest of 12%.
It is simple and straightforward to determine the interest applicable under Recurring deposit scheme from the same formulae as mentioned above. Follow the Recurring Deposit interest calculator below and provide the necessary details to know the actual maturity amount.
It is easy to calculate the compound interest. The interest is applied every quarter. Interest earned from each quarter is added to get the final amount on maturity. The formulae used to find compound interest is:
A = P (1 + r/n) ^ nt
A = final amount received
P = principal or the sum invested initially
r = annual interest rate (calculated in decimals)
n = number of times interest compounded each year
t = scheme tenure
Here are Recurring Deposit Interest Calculator FAQs:
Just like fixed deposit schemes have tax applicable, the RD schemes also follow the same phenomenon. Tax is deducted at source (TDS) on the amount deposited in RD (with effect from June 1, 2015). The TDS is 10% per annum if the interest earned is more than Rs. 10,000 in a single financial year. Taxation is based on accrual basis and not on receipt basis. If you deposit for 5 years in a bank, the interest received is only at the end of 5 years. The tax is then applied on this accrued interest for every year in the maturity year itself.
NOTE: Remember that it is only the interest amount that is taxable and not the amount originally invested in the deposit. If you have no taxable income, then submit Form 15G to avoid the TDS on the deposit.
Here are the benefits of calculating interest on an RD calculator online:
The starting tenure of an RD is 6 months, which can go up to 10 years. You can opt for a tenure in multiples of 3 months after the initial 6 months. So, the tenure can be 9 months, 12 months, 15 months, 18 months, and there on.
There are two types of RDs. In a regular recurring deposit scheme, you choose a tenure for investment and the deposit amount at the time of opening the account. You cannot change the amount of deposit after account opening. If you miss making a deposit, then you have to pay a penalty. Also, on withdrawing money in between from the account, you have to pay a penalty.
A flexible recurring deposit on the other hand, allows you to change the deposit amount every month. The tenure is however fixed. The instalment amount is changeable over and above the base amount. But you may have to settle for a lower rate of interest in this scheme than that applicable on a regular RD.
You can close the RD account before completion of its tenure. You will receive the interest earned till the date of closure. There could be a penal fee charged for withdrawing before the end of tenure.
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