RD Calculator (Recurring Deposit)

M
%

A Recurring Deposit (RD) is a term deposit that allows one to make regular deposits and earn returns on the investment. 5paisa RD deposit calculator helps to calculate the returns and enables an investor to know the exact amount their deposits will accrue after the specific period.

Although you know the necessity of saving money, you may not be motivated to do it because you have a shortfall. But you have an option.

Instead of depositing one single lump sum for a fixed period in a fixed deposit, you can invest small pre-determined amounts as monthly instalments in a recurring deposit (RD) account. 

The process is quite simple, and anyone can do it by opening an RD account and agreeing to pay a specific amount at a recurring already fixed frequency, usually a month until its maturity. On maturity, you will receive the entire deposit and the interest due on your investment. Prefix the RD amount and the recurring frequency with the help of a recurring deposit calculator.
 

A depositor can track the amount already deposited in an RD, but following the returns receivable on the continuous investment is challenging. The interest is generally a quarterly calculation making it almost impossible to calculate the multiple variables. Moreover, the complexity of calculation does not end there, as there is a need for multiphase calculations.

But the complexity of calculating RD returns becomes zero when using the RD account calculator. The RD calculator (online) is available on the 5paisa website and is easy to use. Moreover, the calculations are fast and accurate.

You only have to input the investment amount, the duration of the deposit and the interest rate to calculate the total interest that accrues on the RD and is payable by the bank or post office, whichever applies. Your investment grows at compound interest, and the calculator will provide the exact maturity amount figure.

The calculator will let you know the exact amount you earn as interest on your RD for a fixed period. However, the figure is the gross interest amount. You will need to deduct the tax deductible at source (TDS) to know your interest after the tax payment.

The calculator is available on the 5paisa platform. Its simplicity makes the entire calculation process stress-free. You only need to provide three variables: 

  • The investment amount is the sum you want to save and invest in an RD.
  • The interest rate at which the bank agrees to pay you interest on the RD.
  • The tenure of the RD is the period for which you wish to hold the money in an RD.

Scroll down for a step-by-step procedure to use the 5paisa recurring calculator:

Click on this, and the 5paisa page with the calculator will open up.
You will see the investment amount and a space to enter the figure. Enter your investment amount there.  
The second input is the time period, where you must enter the duration of your RD.
The last input is the interest rate (per annum), where you must enter the interest rate the bank or post office offers you.

The page will, in a second, display the investment amount, estimated investment returns by way of interest and the total value of the investment on the right side of the screen.

The calculator applies a formula to the three variable values explained above to compute the proper amount you will receive at the expiry of the tenure of the RD. The Formula is as follows:

Formula to calculate the Recurring Deposit

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

Where,

M is the amount you receive when your RD matures
R is the RD instalment amount you pay each month
N is the number of quarters in the tenure of the RD
I is the rate of interest that the bank offers you divided by 400
T is the time from the month you started the RD to its maturity

The Formula remains constant even if the tenure of the deposit amount changes.

For better understanding, have a look at the example below:

ABC has opened a Recurring Deposit account for 2 years (8 quarters) at XYZ Bank, where he pays INR 10,000 as his monthly instalment. The bank has promised to pay him an interest rate of 6%. How will the Formula be applied in this case?

M= 10,000[(1+6/400) (8-1)]/1-(1+6/400)(-1/3))

So, the investment amount is INR 2,40,000, the total interest is INR 15,511 and the maturity amount is INR 2,55,511.

It is pretty clear from the above that manual calculation is challenging and time-consuming. But equally simple and fast when you use the rd account calculator.

The main benefit of using the 5paisa RD deposit calculator is that you know the savings you can generate at the maturity of your RD and plan the monthly instalments according to your affordability and financial requirement at the end of the maturity period. 

Using a calculator to compute your RD maturity amount saves time and energy as manual computations are complex.
Manual computing may be inaccurate, and if you base your investment on the erroneous calculation, you may run short of funds to pay for the need you saved for a year.

The calculator is available online, and you can use it multiple times. You can compare the various rates banks and NBFCs offer and choose a suitable place to deposit your money.

Recurring deposit interest rates keep on changing with time. RD interest rates are typically affected by multiple factors.

a. Applicant's Age

Most banks and other financial institutions offer a higher interest rate on recurring deposits to senior citizens as compared to younger age groups. This difference may range anywhere between 0.50% and 0.75% in addition to the basic interest rates that apply to the RD scheme. Another important thing to keep in mind is that junior recurring deposit accounts can also earn a higher interest rate depending on the bank’s offer on minor accounts.

b. RBI Policies

The Reserve Bank Of India is the main body that decides the cash reserve ratio (CRR) and repo rates. Repo rate refers to the interest rate at which RBI lends money to other banks. Whenever RBI reduces the repo rate, it implies that other banks could borrow from RBI at a lesser interest rate and the same is passed on to the customers as well. This affects all possible banking rates, including RD interest rates.

c. Type of Recurring Deposit Account 

The type of RD account you hold will have an impact on the eligible interest rates. For instance, regular savings accounts usually get higher interest as compared to the NRE/NRO accounts. Some banks also offer the same interest rates to both regular and NRE/NRO account holders.

d. Recession and Inflation Scenarios

During the time of recession, banks reduce recurring deposit rates to help RBI's efforts in increasing liquidity in the market and as a result of low credit demand. Likewise, inflation has a positive impact on RD interest rates as they tend to be higher during the rising inflation period.

e. Tenure of the RD

Tenure of the recurring deposit refers to the duration for which the money is invested in an RD scheme. This is one of the key factors that affect the interest rate of recurring deposits. Typically, the rate of interest of RD varies across various tenure options. For instance, medium-term deposits generally earn a much higher interest rate, whereas some banks offer the highest rate on long-term deposits of 10 years. But this is not a fixed rule as some banks also offer the same interest rate on a 1-year deposit as well as a 10-year deposit.

f. Choice of Bank

RD Interest rates vary significantly between different banks. At present, the top banks offer recurring deposit interest rates starting at 7% per annum, whereas most of the nationalized banks tend to offer a slightly higher interest rate of up to 8% per annum.

g. Existing Economic Environment

Depending upon the existing economic conditions, the rate of interest of RD offered by banks and other financial institutions keeps on getting updated. The reasons behind this could be several including inflation, change in the repo rate by RBI, and more. 

h. Rating of the Issuer 

The rating of the issuer also impacts the maturity amount of the RD. All banks and financial institutions that issue recurring deposits are rated by various credit rating agencies. While investing in a bank’s RD is generally safe, a company’s recurring deposit might not be. Therefore, when investing in a company RD, it is best to check its ratings as RD's with a rating of FAAA, FAA is generally considered safe and has a low-interest rate as compared to corporate fixed deposits.

I. Recurring Deposit Schemes

Different banks also have different recurring deposit schemes. For instance, Corporation Bank has an RD scheme by the name Millionaire Scheme on offer in which you are eligible to receive a million rupees at the end of the scheme. But this deposit generally carries a very high-interest rate of 9.25% per annum. So the RD deposit scheme you choose will also factor into the interest rate. Based on the benefits offered by the respective RD scheme, your interest rate may vary.

Here are some of the most important factors you need to consider before opening an RD account.

a. Tenure

There are different tenures available in RD schemes floated by banks. These are short-term tenure (6-12 months), medium-term tenure (1-5 years) and long-term tenure (5-10 years). The tenure of the RD is one of the most important factors that you should not know before opening an RD account as there are several schemes with different RD tenures available. It gives you more options to select the mandate that aligns with your respective financial goals. 

b. The Interest Rate of RD

The RD interest rate varies across banks and different tenures. Typically, the longer the tenure of your recurring deposit scheme, the higher the interest rate. However, there may be some exceptions to this rule.  For instance, medium-term deposits attract the highest interest rates, whereas the interest rates of long-term deposits are generally lower as the individual gains a higher amount of interest in the time horizon.

c. Minimum Amount 

The minimum investment amount of the RD scheme varies from bank to bank. In some banks, the minimum amount to open an RD can be Rs.500 while for others it may be Rs.5,000. This makes it important to know the minimum investment amount before opening an RD account. Since the amount will be automatically deducted from the savings account every month, you have to make sure that you have the required funds in your savings account.

d. Withdrawals on Recurring Deposits

Similar to a fixed deposit or FD, once the RD amount has been deposited, it cannot be withdrawn until maturity. Partial withdrawals from the recurring deposit accounts are not allowed.

e. Taxability of Interest

The interest earned on RD is taxable similar to fixed deposit interest. However, there is a limit to the minimum amount of interest that an RD account should earn before the bank deducts TDS, which is Rs. 40000 (Rs. 50000 in the case of senior citizens). If your income is below the no-tax limit, you can submit form 15G/15H to the bank to save the tax.

Non-resident Indians (NRIs) can invest in either NRO or NRE Recurring Deposit accounts. Details of these are as below- 

NRE RD Accounts

An NRE RD account is a non-resident external account that exempts the accrued from tax in India. It is quite easy to move this account back to the home country of the investor. In this type of recurring deposit scheme, monthly installments are credited to the NRE account.

In the NRE recurring deposit scheme, the funds for deposit come only from NRE or Non - Residential External Accounts. Most banks in India allow NRE Deposits to be booked for a minimum tenure of 1 year. The amount of deposit and the interest rate, however, varies from bank to bank. One of the key benefits of investing in NRE deposit schemes is that the interest that NRIs earn from this deposit is not taxable in India. Among the major banks in India that offer recurring deposits include ICICI Bank, Axis Bank, Andhra Bank and HDFC Bank.

NRO RD Accounts

NRO refers to a non-resident ordinary account. In this type of RD account, investments in deposit installments may come from NRE or NRO accounts. It is important to note that NRO RDs interest is taxable at a rate of 30%, plus the additional CESS. Also, this can be repatriated, subject to certain prerequisites.

The RD calculator is necessary for investors of small sums of money on a monthly instalment basis for a fixed tenure. They can thus prefix the monthly instalments according to their affordability.

FAQ’s

An RD calculator is an online tool that is used to find out the maturity value of the recurring deposit. It uses a simple formula that is provided with which interest on your recurring deposit investment can be calculated. However, there are certain important aspects that you need to keep in mind before calculating the interest. These are-

You must look at each month’s installment as a separate deposit
Compounding on your deposit only happens at the end of every financial quarter and not every month
Each monthly recurring deposit will earn a different amount of interest, whereas the amount procured at maturity is the total of the enhanced value of each month’s recurring deposit.

An online recurring deposit interest calculator is essentially a financial tool that helps you calculate maturity value on your RD quickly and without much hassle. It also gives you more clarity over your investment decision and allows you to compare between the best RD options available.

In recurring deposits, interest is generally compounded quarterly and the RD calculator makes the calculation quite simple. It helps you make an informed investment decision and align your financial goals accordingly.

The recurring deposit calculator is pretty simple to use and can make your calculations both effortless and accurate. Apart from saving time, you can also use an RD calculator to calculate the maturity amounts from RDs and also to compare multiple RDs. Leveraging a recurring deposit calculator allows you to plan your finances with better clarity as you will know the exact value you will get on maturity from the investment in RD.

Here are the steps to use the RD maturity calculator-

The first thing you need to do is to enter the monthly deposit amount that you wish to invest.
The second step is to enter the term of investment in years. You can use the slider to enter the tenure.
The last step here involves entering the interest rate of the RD using the slider.

The RD maturity calculator gives you the initial investment, wealth earned and total corpus created both in numeric and graphical formats.

Interest on RD accounts is compounded quarterly, in most banks. The formula to calculate RD interest is :

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

Where,

M = Maturity Value

R = Monthly instalment

n = Number of quarters

I = Rate of interest/400

So, if you invest in the RD scheme and put in Rs. 10,000 per month for a year, at the interest rate of 8%, your total value will be calculated as:

R = 10000

n = 4 (one year has four quarters)

I = 8.00/400

M = 10000[(1+8)^4-1]/(1-(1+8)^(-1/3) )

Yes, whatever interest you will earn on the invested amount in RD will be taxable.

Some of the key advantages of using a recurring deposit calculator are-

Easy to use and saves time- With an RD calculator investors can save their valuable time as it performs complex calculations in minutes and eliminates the hassle of manual calculations.
Offers accurate estimation of the maturity amount- The online RD calculator is very accurate with minimal or no chances of error if the inputs are given correctly.
Allows investors to plan their finances in the long term- The recurring deposit calculator enables the investors to easily plan their future with great accuracy as the calculator returns the exact value their investment is going to get.

With the help of an RD interest calculator, you can easily estimate the expected returns. To calculate the interest, the RD calculator takes into account the following assumptions

There are 4 financial quarters for recurring deposits quarter 1: April to June, quarter 2: July to September, quarter 3: October to December and quarter 4: January to March

Interest in recurring deposits is compounded quarterly. For instance, if you start your RD in the month of February, the money will earn only simple interest until the month of March. Once the first quarter is over, then only the interest starts compounding.