A Recurring Deposit (RD) is a smart savings tool that helps individuals build a trust fund through regular monthly investments, thus promoting disciplined financial planning. Unlike Fixed Deposits (FDs), which require a lump sum investment, RDs encourage consistent saving habits among young earners. However, calculating returns on an RD can be complex, and manual errors may lead to financial miscalculations. This is where the ClearTax RD Calculator proves invaluable, ensuring accurate and hassle-free financial planning.
What IS RD?
RD or Recurring Deposits are an investment tool which allows investors to make regular monthly payments and save money for the long term. Investors can choose the tenure of the deposit and the minimum monthly payment they wish to make according to their convenience. RD schemes are generally more flexible than FD schemes and are generally preferred by those who want to start an account for the purpose of saving money and building a rainy-day fund.
How Is RD Interest Calculated?
Interest on RD is compounded quarterly, in most banks. The formula for this is :
M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )
Where,
- M = Maturity Value
- R = Monthly Installment
- n = Number of quarters
- I = Rate of interest/400
So, if you invest in RD and put in Rs. 5,000 per month for a year, at the interest rate of 8%, your total value will be calculated as:
R = 5000
n = 4 (one year has four quarters)
I = 8.00/400
M = Rs. 62, 647 in one year
