Recurring deposits are a vital savings option for individuals who are beginning their investment journey and want to start slow. The recurring deposit allows the investors to save penny by penny every month with relatively lower risks and higher returns than a savings account. Understanding the mathematics around the returns and the maturity amount one would realize at the end of the tenure of a recurring deposit can be complex. RD calculator is one specifically designed instrument that can be used for the purpose. It helps the investors compute the maturity amount of their investments by simply entering information about the principal amount, interest rate, and duration of the investment. Here is a list of some frequently asked questions that may be helpful for somebody planning to go for a recurring deposit and in turn need to do calculations with an RD calculator.
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FAQS You Must Know About RD Calculators
- What can an RD calculator do?
An RD calculator computes the maturity amount individual would receive in his or her investment after the duration of the investment is over. This calculator is multipart as the interest is calculated every quarter and there are multiple variables involved in the formula. The calculator eliminates the need for manual calculations which are prone to errors.
2. How to use an RD calculator?
The user of an RD calculator needs to enter the basic information about his/ her deposit such as the principal amount, interest rate, and tenure. Once these details are filled, one needs to click on calculate. The RD calculator provides the maturity value and the wealth gained in numerical and graphical terms.
3. What needs to be calculated separately?
The RD calculator does not regard the TDS while measuring the maturity amount. As per the RBI norms, recurring deposits are subject to TDS. However, the information about the implementation is not stated. Thus RD calculators do not come with this ability and users have to do the calculation concerning the TDS manually.
4. On what factors is the maturity value determined by the RD calculator?
The RD calculator provides the maturity amount based on the following parameters:
Deposit amount – This is the amount the investor deposits in the recurring deposit every month
Interest rate – This is the rate of interest that the investor will earn on his savings. This depends on the amount deposited, tenure of the deposit, and the age of the investor
Deposit tenure – It is the duration for which the amount is deposited in a recurring deposit. Generally, this duration varies between 6 months to 10 years
Frequency – This is the frequency at which the interest is calculated on the deposited. In most of the cases, interest is compounded quarterly.
5. Is the RD calculator accurate?
The recurring deposit calculator provides accurate results subject to the inputs. If the investor provides the correct details to the calculator as inputs, the result shown by the calculator is free from errors.
6. What is the mathematical formula used to calculate the maturity value?
The formula used to calculate the maturity value is given by:
M = R[(i+1) (n-1)]/1-(i+1)(-1/3))
Here, ‘M’ stands for the maturity value on the savings, ‘R’ stands for the amount of the monthly installment to be deposited regularly, ‘N’ stands for the number of quarters or the tenure of the investment, and ‘i’ stands for the rate of interest applicable on the deposit divided by 400.
7. Is the RD calculator free?
Yes, the RD calculator available online is free to use by anyone. Besides, anyone can use this calculator any number of time to compare the maturity values at various tenures and with different principal amounts.
8. Can the calculator be used for comparison?
Yes, the RD calculator can be used for comparing the maturity value that can be realized from RDs in different banks and financial institutions. Investors can even try out different combinations of principal amounts and duration to compare the maturity value and opt for the optimal mix
9. What is the minimum amount for RD?
The minimum amount in an RD varies from bank to bank. Generally, the minimum limit is set at INR 500 and this amount is required to be deposited each month throughout the tenure of the investmen
10. Can RDs be broken prematurely?
RDs can be broken prematurely subject to a ceratin penal fee which varies from one financial institution to another. Interest in such cases is paid until the date of withdrawal
11. What is the range of tenure for an RD?
Mostly, the tenure for RDs starts at 6 months and can go up to 10 years. After the first 6 months, investors can choose investment durations in multiples of 3 such as 9 months, 12 months, and so on. Note that the interest rate also varies with this tenure
12. Do senior citizens get any benefits?
Yes, generally banks and other financial institutions provide higher interest rates to senior citizens, This higher interest rate is generally around 0.25% to 0.75% more than the ordinary interest rates on normal deposits.