What is RD?
An RD or Recurring Deposit is a savings scheme offered by banks and post offices in which you deposit a fixed amount every month for a fixed period. At the end of the period, you receive your total deposits along with the interest earned.
The interest rate is fixed when you open the RD, so your returns are not affected by market movements. This makes RDs a safe way to build savings from your monthly income.
An RD is like a fixed deposit that you build up month by month, instead of investing a lump sum at the start.
Fun fact
Most banks let you open an RD with as little as ₹100 a month, which makes it one of the easiest ways to start a saving habit.
What is an RD Calculator?
An RD calculator works out the maturity value of your recurring deposit and the interest you will earn, based on your monthly deposit, the rate of interest and the time period.
The result is an estimate before tax. Interest earned on an RD is taxable, and the exact amount depends on your bank’s terms.
Why you should use an RD Calculator?
- Simplifies the process: Every monthly deposit earns interest for a different length of time, which is tedious to work out by hand. The calculator does it instantly.
- Plan your savings: Find out how much you need to deposit every month to reach a target amount.
- Helps in comparison: Compare RD rates and time periods across banks before you open an account.
How Does an RD Calculator Work?
The RD calculator works on the following inputs:
- Monthly Investment (P): The amount you deposit every month.
- Expected Return Rate (R): The yearly rate of interest offered on the RD.
- Time Period (N): Number of years for which you keep depositing.
Banks compound RD interest quarterly. Each monthly deposit earns interest for the months it stays in the account, and the values of all the deposits are added together:
Maturity Value = Σ P × (1 + R ÷ 400)^(4k ÷ 12), for k = 1 to N × 12
- P
- Monthly Investment
- R
- Rate of interest per year
- k
- Number of months a deposit stays in the account
Let’s work through an example for better understanding.
Formula to Calculate RD Returns with an Example
Consider an example for a better understanding.
- Monthly Investment: ₹5,000
- Rate of Interest: 7% per annum
- Time Period: 5 years (60 months)
You will deposit a total of ₹3,00,000. After calculation, your RD will mature to approximately ₹3,59,667, earning ₹59,667 in interest.
What are the benefits of investing in an RD?
- Guaranteed returns: The interest rate is fixed for the whole period, so you know your maturity amount in advance.
- Builds a saving habit: Depositing a fixed amount every month makes saving regular and disciplined.
- Low risk: Your returns are not affected by market ups and downs.