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RD Calculator - Discover the Power of Recurring Deposits
To facilitate small savings and build regular savings habits, recurring deposits are one of the best savings instruments. While it is similar to fixed deposits, you need to make monthly deposits in the RD account. Since the deposits are made monthly, the interest calculation and maturity amount also depend on the same, this can be easily ascertained with the help of the recurring deposit calculator.
So, this article will talk about recurring deposits in detail and how you can make use of the calculator to calculate the interest you earn and the maturity amount of the RD account.
What is RD?
Recurring Deposits can be defined as continuing investments. In Recurring deposits, you have to deposit monthly and the interest is calculated as the deposited amount grows.it is to facilitate small savings and inculcate savings habits in individuals even with the limited disposable amount.
Recurring deposits are risk-free investment instruments where you earn a particular interest on the accumulated and the capital also remains secure on maturity, you get the amount deposited plus the interest you have earned on the same. The interest on RD depends on the repo rate and also the bank you have your RD account with. You can easily calculate the interest you can earn on your RD with the rd interest calculator.
Usually, the interest rate on RD carries from 3.5% to 7.5% while the senior citizens earn a bit higher interest rate. For senior citizens, the rate gets hiked by 0.25% to 1% as well. The compounding frequency of the interest on recurring deposits is quarterly. The first quarter starts from April to June, and the last quarter is thus January to March.
Recurring deposits are for all whether you are an individual, HUF, company or corporate, NRI or resident, government organisation or local authorities, minor above the age of ten or minor below the age of ten years, who will need a legal guardian for opening account are eligible for the scheme.
How is Recurring Deposit interest calculated?
Since the account holder deposits a monthly amount into the RD account but the compounding frequency is quarterly, RD interest is calculated using both simple interest and compound interest formulas.
The formulae for the maturity amount of RD are as follows
RD Maturity amount (M) = [P*(1+i/n)^(n*1/t) ] + [P*(1+i/n)^(n*1/t)] +......
+......[P*(1+i/n)^(n*t/t)]
- P
monthly deposit amount
- N
compounding frequency which will be 4 as RD interest gets compounded quarterly
- I
interest on RD in decimals
- T
tenure of investment in months
Let’s understand this with the help of an example –
Suppose you have opened an RD account in your bank and you are depositing Rs. 1000 every month and you want to hold it for 10 years. The interest rate you are getting at present is 7% p.a. So,
RD Maturity amount = [P*(1+0.07/4)^(4*1/120)] + [P*(1+0.07/4)^(4*2/120)] +.....
+......[P*(1+0.07/4)^(4*120/120)]
= Rs. 1.74 lakhs.
As you can see, the calculation of recurring deposits maturity amount is quite tough and it is difficult to do manually, so using a recurring deposit calculator can be the wisest solution for calculating your returns from RD.
What is RD Interest Calculator? How to use it?
So, a recurring deposit calculator is nothing but an online financial tool which is used for calculating maturity amount and interest earned on your recurring deposit within a fraction of a second. As soon as you enter the amount you deposit every month in the RD account, and select the tenure for which you want to invest and the current rate of interest that your RD is earning, the result will be displayed on the screen and you can alter the amount of deposit, interest rate or tenure for investment as many times as you want to compare how much savings you need or how much deposit you need to make or for how long you need to keep investing.
The underlying formula used for running the RD calculator online is the one given above. The formula is inbuilt into the calculator and thus you do not have to manually calculate the amount for every month until maturity. You just need to put in the values, and you will get the results.
Benefits of RD
It helps you understand how much you need to deposit every month to accumulate a certain sum of money which can be used for some of your financial goals.
The calculator also helps in comparing different deposits and tenures of investment in the recurring deposit scheme.
It is extremely user-friendly, even if you are not tech-savvy or have a basic idea about financial calculations, this recurring deposit calculator makes your life easier.
There are no charges for using the calculator which is another thing every user should know.
It helps you calculate the maturity amount that you can accumulate by investing in the RD and also helps in understanding your total interest-earning as it shows the break-ups of the total accumulated amount into total investment made and interest earned.
Finally, it helps in analysing the tax implications as well. You can calculate the maturity amount easily with this calculator and then use the same for checking how much taxes will be levied on the same.
Tax Implications on RD
The interest you earn on your recurring deposit account is taxable. Moreover, there is no tax exemption for the investment/ deposits made into the RD account under section 80C as well. Also, if the interest amount earned from recurring deposits in a year by an individual goes above Rs. 40000 (in the case of senior citizens it is Rs. 50000), then there will be a TDS implication too. It will be levied at the rate of 10% as per current TDS rates.
Thus, if you are considering recurring deposits for tax-saving purposes, then you shouldn’t. These deposits are mainly for building savings and investment habits and earning regular interest on your deposits and for wealth accumulation over the long-term.
Conclusion
So, if you are thinking of opening a recurring deposit account in your bank, before clicking on the open account tab, check the amount you need to deposit to accumulate a certain amount you require in the future or check for how long you need to stay invested and you can do all these within a blink of an eye with the recurring deposit calculator.
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