All about Kuvera’s Recurring Deposit Calculator | Know How Much You Will Have at Maturity

Introduction

Recurring Deposit (RD) is a type of fixed-income investment option. RDs are one of India's most popular conventional investment options, and people have been using them as an investment option since decades. It is easy to invest in RDs because a bulk amount doesn't have to be invested in the case of RD. 

In recurring deposits, one invests a fixed amount every month till maturity. This inculcates a monthly saving habit, which is required to reach investment goals. Typically, the investment tenure can range from 6 months to 10 years, and investors can choose as per their convenience. As the interest of RDs keeps compounding, the returns are much higher than savings accounts. 

Features Of Recurring Deposit

Some of the noteworthy features of a recurring deposit are listed below:

1. Interest Rate: The RD interest rate can range between 5% to 7.5% or even higher depending upon the bank or non-banking financial company (NBFC) with which an individual has opened their RD account. 

2. Minimum Deposit: The minimum deposit amount varies from one bank/NBFC to another. However, usually, banks/NBFCs allow individuals to start an RD starting from Rs. 500 per month. 

3. Interest Calculation Cycle: The RD interest is typically compounded every quarter, i.e., three months.

4. Premature Withdrawal: Most banks/NBFCs allow premature withdrawal of RDs. However, in case of premature withdrawal, the investor will get interest at a rate lower than the interest rate which was originally promised. 

5. Partial Withdrawal: Most banks/NBFCs do not allow partial withdrawal of RDs. 

6. Loan on RDs: Banks usually offer loans against recurring deposits. The loan amount can range from 70% to 90% of the deposit value. As the RD is used as collateral, investors don't have to submit any other collateral. 

7. RD Tenure: RD tenure usually ranges from 6 months to 10 years. However, the RD tenure range can differ for banks/NBFCs. 

Recurring Deposit Investment Benefits

The key benefits of investing in a recurring deposit are specified below: 

1. Higher interest rate: The interest rates offered by an RD are much higher than the interest shown on a regular savings account. The savings account interest rate varies from 3% to 4% for most of the major banks, whereas RD interest rates can easily be above 5% depending upon the RD tenure chosen by the investor.

2. Higher interest rate for seniors: Seniors citizens usually get a slightly higher RD interest rate than others. Individuals above the age of 60 are eligible for a higher interest rate which generally ranges from 0.10% to 0.50% higher than the regular RD interest rate of comparable tenure. 

3. The habit of saving: By investing in RDs, investors get habituated to saving a portion of their income or salary from a young age. RDs are especially suited for youngsters who have just started working and do not have the luxury to invest a lump sum amount. 

4. Compounding of interest: As the interest is typically compounded every three months, the interest earned during the previous interest cycle gets added to the principal for the next cycle. 

How is RD interest calculated?

The compound interest formula can help the investors calculate the RD interest manually. The Recurring deposit formula to calculate RD interest is given below:

M = R [(1+i) n - 1] / 1 - (1+i) (-⅓)]

Here, M is the amount that the investor will receive at maturity. 

R = Monthly amount that is deposited in the RD account. 

n = number of interest calculations in the RD tenure. 

i = Rate of interest/400.

However, manual calculations are prone to mistakes due to human negligence. Also, it is time-consuming and frustrating, especially if the investors don't have the time to do the calculations themselves. 

In such scenarios, it is better to use Kuvera's RD Calculator as it is both easy to use and generates quick results. The results generated by a recurring deposit calculator are accurate and help the investors to focus on other aspects of the investment such as investment tenure, RD interest rate, investment amount, etc. 

How To Use The Kuvera's Recurring Deposit Calculator?

Investors can use Kuvera's RD Calculator to quickly calculate the returns on RD. 

Step 1: Enter the monthly deposit amount you wish to invest.

Step 2: Enter the term of investment in years. 

Step 3: Enter the interest rate of the RD. 

Factors Affecting The RD Interest Rates

Several factors influence the interest rates of a recurring deposit. Some of the key factors are discussed below: 

1. Tenure: The RD tenure is key in determining the RD interest rate. A longer tenure generally attracts a higher RD rate, whereas a lower tenure means the deposits will be locked in at a lower interest rate. 

2. Age: Higher recurring deposit interest rate is offered to senior citizens. 

3. RD provider: The recurring deposit interest rate also varies as per the bank or NBFC where the investor has opened an RD account. NBFCs typically offer slightly higher recurring deposit rates, than the recurring deposit rate offered by banks. The interest rates on RD might also vary according to a particular scheme or investment offer launched by a bank. 

Taxes Applicable on Recurring Deposits

Interest income from the recurring deposit is taxable as per the tax slab of the individual investor for ex. if the investor is in the highest tax bracket he will be paying 30% income tax on his interest income. 

Tax Deduction At Source

If the investor earns more than Rs. 40,000 per annum as interest via RDs, the bank/NBFCs will hold 10% of the interest earnings as TDS (Tax Deductible At Source). This limit is up to Rs. 50,000 for investors who are above 60 years of age. However, no TDS will be withheld if the yearly interest income is less than Rs. 40,000 (Rs. 50,000 for senior citizens). A TDS of 20% of the interest income will be charged as a penalty if the investor does not furnish their PAN details to the banks/NBFCs. 

Factors to consider before Opening an RD Account

Investors must consider several factors before investing in RDs. Some of the essential factors are discussed below: 

• Deposit Amount: The best thing about RDs is that investors don't have to collect a huge amount to start investing in them. If they can save anywhere between Rs. 500 to Rs. 1000 per month, they can open an RD account and start benefiting from the recurring deposit. 

• Diversification: Investors who have invested a chunk of money in market-linked instruments like mutual funds and equities tend to invest a part of their income in RDs to balance their investment risk. The banks offer a higher upper limit for such investors, ranging from Rs. 10,00,000 to Rs. 1,00,00,000 per monthly instalment. 

• Tenure: Investors should pick a bank that offers a wide range of RD tenures. Generally, an investor chooses an RD tenure between 1 to 5 years but RD schemes with 10-year tenure are also available with most banks/NBFCs. A wider tenure range ensures that the investors can select a convenient tenure per their investment objectives. 

• Rate of Interest: Investors generally go for the RD schemes that offer a higher rate of interest. Higher RD interest rates promise higher income at maturity. 

Also, they can use Kuvera's Recurring Deposit Calculator to calculate the RD returns in advance. You can use the RD Calculator to plan your investments wisely and meet your future investment goals. 

• Liquidity: The one thing that most investors ignore while investing in RDs is the liquidity options offered by the RD provider. Recurring deposits typically do not allow partial withdrawals and in the case, the investor decides to withdraw the whole amount he will be penalised, i.e., he will be paid a lower interest rate. 

However, only some banks allow investors to withdraw their deposits early by charging a specific penalty or fee. Therefore, one must check the liquidity rules of a particular bank or NBFC before opening an RD account. 

• Account opening procedure: The account opening procedure typically requires identification documents and form filling with the bank/NBFC.  It is easy to open an RD account if the investors already have a savings account. Then, the bank will not ask for additional documents to validate their identity and address. In such cases, they only have to fill out an RD account opening application form and provide a couple of passport-size photographs. 

Most banks also provide an online account opening procedure where the investors can fill out the form and submit the documents, digital signature, and photograph online. The bank will go through the documents and form and demand an in-person verification if required. In most cases, no additional verification is required once a user provides their PAN, address, and identity proof. 

The bank will also require the savings account details from where the RD deposits will be automatically deducted. Most banks ask individuals to open a savings account in their bank before opening an RD account. However, some banks allow their customers to open an RD account directly. In such cases, the investors need to provide their KYC documents and submit deposits every month via cash or cheque. If they fail to pay the deposit on time, the bank will charge a penalty as late or no payment fees. 

Eligibility Criteria for Recurring Deposit (RD)

Some eligibility requirements are to be met before opening a recurring deposit. These requirements may vary from one financial entity to another. The eligibility criteria that most banks follow are given below:

1. Age: Anyone who is above 18 years of age can open an RD account in India. A minor, i.e., an individual below 18 years of age, can also open an RD account with consent from the legal guardian or parents. 

2. Nationality: The investors can be citizens of India, NRIs, or a part of the HUF (Hindu Undivided Families). Sole proprietorships, government agencies, societies, trusts, partnerships, and clubs are also permitted to invest in recurring deposits. 

Why Is It Beneficial To Invest In Recurring Deposits (RD)?

Some of the main benefits of investing in RDs are specified below:

Fulfilment Of Financial Objectives 

An investor might have numerous financial obligations and objectives to fulfil, such as paying the school fees for children, planning a holiday with family, and saving for a medical or financial emergency. 

An RD is an ideal instrument to meet all these objectives in a disciplined manner. Individuals can open multiple RD accounts to meet these objectives without curtailing food, lifestyle, and leisure expenses. As a fixed amount will be deducted from their account monthly, investing in RDs is ideal for salaried individuals. Self-employed individuals can use RDs to grow their savings at a steady pace. 

Fixed-Rate Of Interest

An RD interest rate will remain the same once an investor opens an RD account. The rate of interest at which the recurring deposit is offered varies from time to time because of changes in bank policies, and market conditions. However, once booked, the RD rates will remain constant for your investment. Therefore, it is one way of protecting capital from fluctuating interest rates in the market. 

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FAQs

What is a recurring deposit?

A recurring deposit is a fixed-income investment option that allows investors to grow their monthly savings at a steady rate. The investor needs to deposit the money monthly till the completion of the investment tenure. Upon maturity, the investor can also choose to renew the RD.

How much interest I can expect from a RD account?

Banks typically offer interest around 5% and above on recurring deposits but it also depends on the tenure of the investment. NBFCs offer interest at higher rates.

Can nominees be added to an RD account?

Yes, an investor can specify the nominee's name in the application form while opening the RD account. The nominee will receive all the RD benefits in case the investor who has opened the account dies before the completion of the RD tenure.

Are partial withdrawals allowed in RDs?

Banks usually don't allow partial withdrawals for RDs. However, one can inquire with the customer care executive of a specific bank regarding the same before opening an account with them.

Is a recurring deposit a safe investment option?

Yes, RDs are low-risk investment options as their returns are not based on stock market performance.