What is an RD?
RDs, which stand for "Recurring Deposits," are a type of investment that lets people make monthly payments and save money for the long term. Investors can choose how long they want their deposit to last and how much they want to pay each month as a minimum. RD schemes are usually more flexible than FD schemes, and most people who want to start an account to save money and build up a fund for emergencies.
How is the interest on an RD figured out?
Most banks add up the interest on RDs every three months. This is how it works:
M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )
M = Maturity Value
R = Payment every month
n = How many quarters
I = Interest rate divided by 400
So, if you put Rs. 5,000 into RD every month for a year and the interest rate is 8%, your total value will be:
R = 5000 n = 4 (each year is split into four parts)
I = 8.00/400
M = 62,647 rupees in one year
The benefits of RD
RD can be used as security to get a loan. You can borrow up to 80–90% of the amount of your RD.
Under RD, early withdrawals are allowed. But this might come with a small fee.
Seniors can get a higher rate of interest through RD schemes.
Children under the supervision and care of their parents can also open RD accounts.
The length of time is also flexible, and you can choose anything from 7 days to 10 years.
You can save money regularly with RD schemes, and the minimum deposit can be as low as RS. 10
The tax breaks for RD
Recurring Deposit schemes are taxed, just like other ways to save on taxes and make investments. If the total interest on an RD is more than Rs. 10,000 in a single financial year, a TDS of 10% is taken out of the returns