What Should You Know About Recurring Deposit

Recurring deposit schemes provided by banks are favourite investment choices for many people. Working people, as well as people with smaller incomes, choose RDs as their investment option. Under this scheme, a person must invest a specified sum of money for a fixed period each month and receive interest on their investment. Upon maturity of the RD, the principal sum is returned along with interest.

RD schemes are usually more flexible than FD schemes, which often benefit those who choose to set up an account to save money and build an emergency fund.

How is interest determined for recurring deposit?

To learn more about your investment, use the recurring deposit calculator

For most banks, interest for RD is calculated annually. The formula is:

M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )

In this,

M is the Maturity value

R is Monthly Instalment

N is Number of quarters

I is Rate of interest/400

Here are some details you need to know about Recurring Deposits:

• The minimum amount of investment required to be deposited each month in an RD scheme is as small as the INR 1000. This is a massive attraction for low-income individuals and wage-earners.
• Since the investor has to spend a portion of his income regularly, inculcating the saving habit is very beneficial.
• Payment may be made directly to one's RD account via the Savings or Current Account.
• You can connect an RD account to your Savings account. Hence it does not require any documentation work in these cases.
• Unlike fixed deposit schemes, where a lump sum amount is to be invested at once, Recurring Deposit does not drain the investor.
• Recurring deposits are the best investment option, especially for those planning to handle short-term financial circumstances such as financing money for a dream holiday or wedding, higher education costs etc. RD interest calculator can help you plan well.
• Most banks allow for the opening of recurring deposits in the name of minor children with the parent or legal guardian holding a joint account. This helps to build investments for future use of the minor.
• Most banks provide loan facility on the recurring deposit amount. This loan is granted up to 95 per cent of the recurring amount of deposit. You can get it in case of any emergency.

To help plan your monthly investment in a recurring deposit, it is advisable to take the help of an RD calculator to plan your investments.

You will find this instrument on your digital banking app as well. This way, banking is on your fingers.