The article briefs about Recurring Deposit and Upwardly’s RD Calculator.
What is Recurring Deposit?
Recurring Deposit (RD) is a savings option that helps save for the future. In an RD people can save a small amount regularly for a predetermined period and earn interest on those deposits. Once the deposit matures the lump sum and interest is paid back. Determining the amount one can earn through investing in an RD is easy as the interest rate is fixed throughout the tenure of the RD. It doesn’t change, unlike some investment products.
The interest rate on RD varies from bank to bank. It lies in the range of 3.5-8.5% for different time periods. The interest rate for senior citizens RD account is slightly higher than the regular accounts. Most banks offer an additional rate of 0.25%-0.75% for senior citizens. The interest in RD is compounded quarterly. Any individual, HUF, corporate, company, NRI, government organization, minor above the age of 10, and minor below the age of 10 under a legal guardian can open an RD account.
Most banks also offer flexible RD. In this, the investor can invest a flexible sum of money in each interval depending on his/her convenience. The bank allows the depositor to select a core amount which will the basic investment in each interval and the investor can invest in the multiples of the core amount in each interval.
- RD’s inculcate a regular habit of saving money.
- The minimum amount to start an RD is as low as Rs 10. This can vary from bank to bank.
- The minimum tenure of an RD is 6 months and can extend to 10 years.
- RDs offer a higher rate of interest than a savings bank account. Also, RDs offer higher rates for senior citizens.
- Premature withdrawals are not allowed for RDs. But in some cases, banks do allow premature withdrawals at some penalty.
- One can take a loan against an RD by using the deposit as collateral and get 80-90% of the deposit as a loan.
- ARD can be funded regularly by giving standing instructions to the bank to automatically credit the RD account from their Savings or Current Bank account.
Investing in RDs will give a guaranteed return making it an attractive investment option. Apart from this, it has the following benefits.
- RD is a simple investment product making it easy for new investors to understand it. By investing in RDs one can inculcate a habit of investing and saving regularly.
- RDs can be an investment product for any term – short, medium or long. The minimum tenure starts from 6 months and goes up to 10 years. Also, the minimum investment amount is usually Rs 10 for some banks. But mostly for public sector banks, it is Rs 100 and for private banks, it is usually Rs 500 – Rs 1000.
- RDs are highly liquid. One can withdraw the amount from an RD anytime they want but they will be charged a small fee for the same by the bank.
- One can take a loan against their RD deposit and get 80-90% of the deposit value as loan.
- RDs have a flexible option where one can invest varying amounts at each period (more than the minimum amount) based on their convenience.
Recurring Deposit Formula
Here’s the formula to calculate maturity value for a Recurring Deposit:
M = Maturity value
R = Monthly instalment
n = Number of quarters
i = Rate of interest/400
Interest earned on RDs is taxable. Amount of TDS depends on the tax slab the investor falls in. For annual income:
- less than Rs 2.5 lakhs the TDS of 10% is applicable if the interest earned exceeds Rs 10,000. One can claim a refund on the TDS paid by submitting form 15G to the income tax department.
- within the range of Rs 2.5 lakhs and Rs 5 lakhs the TDS of 10% is applicable if the interest earned exceeds Rs 10,000.
- in the range of Rs 5 lakhs and Rs 10 lakhs, if the will be liable to pay a tax of 10.3% as the bank will deduct only 10% TDS if the interest earned exceeds Rs 10,000.
- within more than Rs 10 lakhs, if the person will be liable to pay a tax of 20.3% as the bank will deduct only 10% TDS if the interest earned exceeds Rs 10,000.
Upwardly’s RD calculator
Upwardly’s RD calculator is a handy tool for calculating Maturity Value. It just takes seconds to shows how much would your maturity amount be using the RD Calculator. This RD calculator requires you to input certain variables to determine EMI value, which includes:
- Monthly Deposit Amount – This is the amount which you invest in your RD account every month. The minimum Deposit amount varies for every bank and can be as low as Rs 10. Enter the ‘Monthly Deposit Amount’ you wish to invest every month in the account.
- Interest Rate – The amount of interest that you can earn depends on the amount you have deposited in RD account, the interest rate offered by the bank and tenure of RD. Enter the ‘Interest Rate’ on which you would like to calculate the maturity value.
- RD Term Year – It is the duration for which you plan to hold your money in RD. Generally, RD tenure varies between 6 months to 10 years. Enter ‘RD Term Year’ for your investment.
Use Upwardly’s RD Calculator to find how much corpus you would earn at the end of your investment period.
Below is an example, where an RD is taken for a term of 5 years, with Monthly Deposit Amount of Rs 10,000 at 7.5% interest rate. The maturity value of the investment is Rs 6,90,228 at the end of RD term.
Similarly, you can try the RD calculator for varying combinations of Monthly Deposit Amount, RD Term Year and Interest Rate.
Factors to consider before opening RD Account
While the recurring deposit is a safe investment option and return on investment is mostly guaranteed, it is advised to consider the following factors before investing in a recurring deposit account.
Interest Rates Offered: The interest rate offered by banks varies from bank to bank over different term periods. The interest rate offered to a recurring account holder by various banks generally ranges from 3.5% to 8.5% p.a. Return rates vary according to the selected deposit tenure. The rates are usually the highest for medium-term deposits. The rates are usually slightly lower for long – term deposits as the holder of the deposit stands to gain a higher overall interest.
Term Period: Recurring Deposit term periods are divided into three categories:
- Short-Term Tenure: A tenure that lasts from 6 months to 1 year.
- Medium-Term Tenure: A tenure that lasts from more than 1 year to 5 years.
- Long-Term Tenure: A tenure that lasts from more than 5 years to 10 years.
The right way to invest in a recurring deposit account is by identifying the shortest term period plan that offers a high rate of interest.
Facility of Premature Withdrawal: While choosing the right recurring deposit, investors should consider liquidity as it is one of the most important factors. RD comes with premature withdrawal facility, but it will require the investor to pay a premature penalty. Therefore, while investing choose that charges a low fee on premature withdrawal and offers a high rate of interest.
Eligibility Criteria for Recurring Deposit
- Any individual.
- Minor over 10 years of age may open a recurring deposit account if he or she provides proof of his or her name.
- Any minor who is below or equal to 10 years of age under the guardianship of natural or legal guardian.
- Corporate, company, proprietorship or commercial organization.
- Any government organization.
Documents Required for Recurring Deposit
- Bank application form
- Passport size photographs
- Identity proof
- Address proof
- KYC documents if the bank requests for it.
Recurring Deposits for NRI/NRE
NRIs can either invest in either NRO or NRE Recurring Deposit accounts.
- NRE RD Accounts: An NRE is a non-resident external account that exempts the accrued from tax in India. Also, you can also move this account back to the home country of the investor without any hassle. In this, monthly installments are credited to NRE account.
- NRO RD Accounts: NRO is a non-resident ordinary account. Investments in deposit installments may come from NRE or NRO accounts for these accounts. NRO RDs interest is taxable at a rate of 30 %, plus the additional CESS. This can be repatriated, subject to certain prerequisites.
Calculate your investments using the Recurring Deposit Calculator.
Check out Upwardly’s Recurring Deposit Calculator here.