A recurring deposit (RD) is a scheme that allows investors to save small amounts regularly over a period of time. As the name suggests, it is a deposit that is made on a recurring (continuous) basis for a specified time period. The banks give a fixed return on recurring deposits. You can use the recurring deposit calculator to compute the effective return on your investment.
Recurring deposits are quite similar to fixed deposits. The primary difference lies in the mode of investing. While fixed deposits entail a lumpsum investment, recurring deposits are made in fixed monthly/quarterly installments. The principal amount, along with the accumulated interest, is paid back at the time of maturity. The RD calculation is slightly complicated, and you can make use of a handy tool like the online RD calculator to simplify the task.
What is an RD Calculator?
An RD is preferred mainly because it instills the habit of regular savings & investment in people. As little as Rs.100 can be invested every month for periods ranging between 6 months to 10 years. The interest rate remains fixed for the entire tenure and typically gets compounded every quarter.
The periodic investments in an RD scheme, along with quarterly compounding, make it challenging to make manual calculations and determine the maturity amount. An RD calculator eliminates these hassles and directly gives you the final amount if you input a few variables. You can use the RD calculator online and instantly get the result.
Using the Online RD Calculator
The four variables involved in an RD calculation are:
- Monthly Installment (Rs)
- Interest Rate (%)
- Investment Tenure (Years)
- Frequency of Compounding (Per Annum)
In order to use the Online RD Calculator, please follow the steps given below.
Step 1: Enter the monthly installment that you wish to invest
Step 2: Enter the RD tenure and the rate of interest offered by the bank.
The frequency of compounding is assumed to be 4 (i.e. quarterly). Ensure that all the other numerical values are entered correctly.
The online RD interest calculator instantly does the calculation and gives the output in seconds.
7 Tips to Effectively Use the RD Calculator
An RD calculator is a tool that gives the correct results only if you use it in the proper manner. Here are some tips that can help you do so.
#1: Know the Objective
Before using any tool, you must clearly understand the underlying objective to gain the maximum benefit from it. An RD calculator is primarily used to know the amount you shall receive at maturity after investing regularly for a fixed period. This exercise can help you plan for the future.
#2: Understand the Basic Concepts
The concept of a fixed deposit is simple & straightforward because investment is only made once. But a recurring deposit formula involves multiple & periodic investments (principal) along with compounding interest (interest earning interest). The entire amount is paid at maturity to the investor.
#3: Know the Investment Tenure
Typically, the minimum tenure for an RD is six months, and the maximum is ten years. Choose the period to match your financial goals. For e.g., if your child is 12 years of age, you can make an RD for six years to match his/her higher education goal at the age of 18. Carefully choose the tenure to meet your future needs.
#4: Know What You are Getting
Before investing in an RD scheme, it is essential to know the interest rate offered by the bank. Banks offer slightly higher rates for senior citizens. The recurring deposit interest rates may also vary across banks, with the new players offering higher rates to attract investors. Know the exact rate and enter it correctly in the calculator.
#5: Monthly Installment is Important
The minimum monthly contribution in an RD scheme may vary from one institution to another. It can be as low as Rs.100 in many of the nationalized banks and range between Rs.500-1,000 in the private sector banks. You can use the online RD calculator to determine the exact amount you need to invest for any future goal.
#6: Don’t Forget the Taxman
The tax shall be deducted at source (TDS) if the interest income on your RD exceeds Rs.40,000 (Rs.50,000 for senior citizens) in a year. The rate of TDS is 10%. You can use the online RD interest calculator to know your annual interest income.
You can submit Form 15G/15H to the bank, requesting them not to deduct TDS if your annual income is below the taxable limit.
#7: Cross-Check the Input Variables
Wrong inputs will invariably produce incorrect output. Once you enter all the values in the online RD calculator, please check them twice to ensure that there are no numerical errors and typos.
Benefits of Using the Online RD Calculator
Investors get the following benefits by using an online RD calculator.
- It is simple & convenient to use the RD calculator. You can save a lot of time & effort by using this free tool.
- The RD calculator in India is helpful in financial planning as it gives the maturity amount of RD investments. You can try various combinations of input variables to accumulate a specified amount in a given time period.
- You can compare recurring deposits with several other investment instruments to make prudent financial decisions.
- There is no scope for mistakes in calculations. The tool gives accurate results if you input all the values correctly.
Conclusion
A recurring deposit is a safe investment and is ideally suited for risk-averse investors who seek a fixed return on their investments. Regular investments impart a strong saving habit among people. It is prevalent in India and is offered by most banks & financial institutions.
But unlike a fixed deposit, the RD calculations are pretty lengthy and complicated to be performed manually. A recurring deposit calculator is a fantastic tool that can help you to compute the maturity amount. It is simple, fast, and also free to use!
