Recurring deposit or also known as RD is one of the popular methods of saving money especially for people who fear to take a risk in investment and yet want to earn some interest on their money. In recurring deposit, a person needs to deposit a fixed amount every unit period in general case it is every month. The rate of such deposits is usually around 8%, and it is higher than what is provided in a savings account. Therefore it makes it a lucrative offer for many people who want to earn some extra on their money.
RD account is best suited to middle-income class individuals who have a stable source of income and is the best solution for medium term saving. Before you go out in search of an RD account, it is essential that you grasp the basic calculation that must be done to give you interest and the maturation amount that you get at the end of such investment.
How to calculate the recurring deposit?
Now, imagine you have a bank account in which the RD is as follows:
The principle or the amount that you pay every month is Rs 4000. The period for the deposit is one year. The interest rate is 8.25% compounded annually. So on the first month, the interest will be calculated on Rs 4000 for 12 months at 8.00 interests compounded quarterly. Then in the next month, the interest paid by the bank on next Rs 4000 will be for the term period of 11 months and so on. This table makes it easy to understand the interest paid in a recurring deposit.
The formula used to calculate the amount is A=P*(1+R/N) ^Nt
Where, A = Amount at maturity
P = Principal Amount (let’s say Rs 4000)
R = rate of interest in decimal format (here it is equal to 0.08)
T = Time period in months (in this case, it is 12 months)
t = duration of time in years
N = compounding frequency (n this case, it is four since it compounded quarterly)
The maturity amount is calculated for single deposit, and the total sum is calculated by adding the individual maturity amount.
|Month||Principal||Rate||Time(months)||period(years)||N(frequency)||A= P*(1+R/N)^Nt||Interest earned|
|1||4000||0.08||12||12/12||4||A1 = 4329.73||329.73|
|2||4000||0.08||11||11/12||4||A2 = 4301.24||301.24|
|3||4000||0.08||10||10/12||4||A3 = 4272.94||272.94|
|A = 50117.29||I=2117.29|
It shows the overall idea of RD. Another easy way to quickly calculate the maturation amount of your RD is to use an online RD calculator such as upwardly.in RD calculator. It provides a user-friendly interface along with quick results to show you the required information.