RD Calculator - Recurring Deposit

By Oghenekaro Elem
Last updated: Sep 18, 2021

RD calculator (recurring deposit) helps you determine your RD investment account's maturity value if it grows at a specific interest rate and over a given time. Are you worried that you'll be tempted to tap into your savings to buy a house? Or your salary won't let you save for that vacation in the Bahamas? Then a recurring deposit investment account might be what you need to meet your savings goal!

As the name suggests, recurring deposit or RD accounts help you make incremental deposits that earn you a risk-free interest at the end of the investment term. Okay, seriously, if you're saving to buy a house, you should consider a biweekly mortgage, a mortgage loan schedule that'll let you pay bit-by-bit and reach your goal faster.

This article will answer the question: what is RD? Teach you how to calculate RD maturity amount, how RDs work, and why they are a preferred investment tool among many investors. With this RD calculator, you can calculate the exact amount you'll earn if you make a fixed monthly deposit over some time without going through the hassle of computing each monthly return.

What is RD?

Recurring deposit (RD) is a type of term investment in which you can make regular deposits and earn a fixed interest rate on the deposits over a period. The deposits are usually monthly with interest compounding quarterly. RD investment account enables earning individuals who want to enjoy a fixed interest rate on their savings without making a lump sum deposit – like the fixed deposit (FD) investment account. But a recurring deposit is a more flexible investment alternative to the FD investment because you can choose the minimum monthly deposits you wish to make and how long you want to make these deposits ranging from 6 months to 10 years.

Some financial institutions allow you to automate your monthly payments from your regular savings account by issuing a standing order. And whenever you want, you can deposit more than the minimum amount you've set up into your account. This flexibility ensures that you build a convenient bit by bit savings habit towards your investment goal and earn more return on your investment, at your own pace.

The interest rates for RD are highly competitive, given its flexibility. Interest rates can vary between 5% to 8% depending on the prevalent market trends, inflation, and term of the RD. Generally, the higher the term period, the better the interest rate.

To enjoy the full benefit of compounding interest, you must make the monthly payments as at when due. If any payment is missed or delayed, the bank will reduce your accruing interest, and you will not be able to earn the initially projected maturity value.

Therefore, if you want to get the best deal when considering investing in a recurring deposit account, ensure that you choose a bank that:

  • Charges a low fee on premature withdrawal; and
  • Offers a high rate of interest rate on the shortest-term period plan.

Another risk-free investment solution that can generate steady income for you is the post office monthly income scheme.

How to calculate RD amount?

You can calculate recurring deposit maturity amount using the RD formula:

Maturity amount = Total deposits + Interest,

where:

  • Total deposits = monthly deposits * number of months you made payments

  • Interest is calculated monthly on each deposit. Therefore, the annual interest rate is divided equally for each month and calculated as:

    • Interest = P * (12 + 11 + 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1) / 12 * r / 100
    • Interest = P * (12 + 11 + 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1) * 1 / 12 * r / 100
    • Interest = P * 12 * (12 + 1) / 2 * 1 / 12 * r / 100

For n number of months:

  • Interest = P * n * (n +1) / 2 * 1 / 12 * r / 100
  • Interest = P * n * (n+1) * r / 2400

where:

  • P is monthly deposit,
  • n is number of months,
  • r is the annual interest rate.

Example: Calculating RD maturity amount

Ambani deposits ₹100 for 10 years in an RD account. What will be his maturity amount if the interest rate on the RD account per annum is 8%?

Step 1: Calculate the number of months.

n = 10 years * 12 = 120 months

Step 2: Compute Ambani's total deposits.

Total deposit = 120 * ₹100 = ₹12,000

Step 3: Calculate the total interest accrued.

Interest = ₹100 * 120(120 + 1) * 8% / 24 = ₹4,840

Step 4: Finally, sum the total deposits and accrued interests to get the maturity amount.

Maturity amount = ₹12,000 + ₹4,840 = ₹16,840

Ambani's maturity amount payable to him by the bank at the end of the 10-year term is ₹16,540.

Benefits and Limitations of RD

Benefits:

The following benefits of RD make it a good investment vehicle for most investors:

  • RD is an entirely risk-free, stable, and predictable investment method, and it is more flexible than a fixed deposit.
  • You can earn interest at a rate applicable to fixed deposit accounts without making a huge upfront deposit.
  • RD is convenient and straightforward to set up, especially if you already own a regular savings account with the financial institution.
  • RD accounts provide a higher interest rate than a regular savings account.
  • RD instills a savings discipline for investors, especially salary earners with multiple financial goals.
  • The minimum amount for monthly deposits is low enough for low-income earners to maintain an RD account.
  • You can make subsequent monthly contributions in multiples of the minimum amount to earn more.
  • You can automate your contributions through standing order instructions to the bank or a post-dated cheque.
  • A recurring deposit has a fixed interest rate, and maturity value is guaranteed if you make the regular deposit.
  • Some financial providers offer preferential interest rates to senior citizens.
  • You can take loans against your RD amount.
  • Premature withdrawals are allowed in case of an emergency.
  • If you initiate premature RD closure, you will still enjoy interest for the deposit period.
  • Recurring deposit is the best and safe option to invest if you are planning to meet short term financial goals.
  • Setting up an RD for a minor can teach them to save while they gain good interest on their savings.

Limitations:

  • You'll earn less interest and pay the penalty if you make a withdrawal before your RD matures.
  • You pay tax on your earnings, which reduces your return.
  • Banks do not allow partial withdrawal of the RD amount.
  • Deposits must be in multiples of the minimum deposit amount if you want to contribute more.
  • If you take a loan against your RD, you must pay it back in a lump sum.
  • An FD will earn you more interest than RD in the long term since interest accrues from the balance in the first month.

In case you are looking for investment options that offer a higher return than RD or FD, we recommend checking our systematic investment plan calculator.

Oghenekaro Elem
Monthly deposit
$
RD term
yrs
Interest rate
%
Total deposits
$
Total Interest
$
Maturity amount
$
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