Recurring deposit (RD) - Best way to save your money

Recurring deposit (RD) - Best way to save your money

Recurring deposit (RD) is a popular of savings alternative to fixed deposits and other long term saving schemes among investors. In a recurring deposit a person has to save a fixed amount every month for a fixed tenure.At the end of the tenure, the maturity amount is paid back to the individual that includes the principal invested and the interest earned.

When a person  does not have a lump sum amount to save for a short term goal, Recurring Deposit is the best option and comes handy as it helps to save some amount each month.  Conservative investors who are looking for fixed returns with no market volatility may consider Recurring Deposit investment to create a corpus to meet the goal.

One can open a Recurring Deposit either with a bank or with the post office. The minimum amount of investment depends from bank to bank and you can generally the minimum amount starts with 100,500,1000 and so on in multiples.

Pre-mature withdrawal

One may cancel the standing instructions and liquidate the Recurring Deposit in case of emergency which are set through Internet Banking and close the Recurring Deposit before maturity.  Recurring Deposit accounts opened online can be closed online or else once can visit nearest branch and provide Recurring Deposit closure request. On pre-mature withdrawal of the Recurring Deposit interest will be calculated at the rate applicable for the period the deposit has actually remained with the bank, less applicable premature withdrawal penal rate if any,

The formula used for arriving at the maturity value of Recurring Deposit over a certain period at a certain interest rate is:

The formula is: A = P*(1+R/N)^(Nt)

5000*(1+.0825/4)^(4*12/12) = 5425.44
5000*(1+.0825/4)^(4*11/12) = 5388.64
and so on till the last installment
5000*(1+.0825/4)^(4*1/12) = 5034.14

A= Is the maturity amount in rupees
P= The recurring deposit amount in rupees.
N= Is the compounding frequency.
R= Interest rate in percentage
T= Is the tenure

For a 12 month RD of Rs 5,000 at 8 percent per annum, the maturity value (in case of recurring deposits would be Rs. 62645, the compounding happens on quarterly basis.

Recurring Deposit Calculator.

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