Recurring Deposit (RD) Calculator with Quarterly Compounding

Banker's Guide: Understanding RD Calculation & Regulations in India

The Logic Behind Your RD Maturity (Quarterly Compounding)

For banking professionals, accurate compounding is key. This calculator uses the standard commercial method for Recurring Deposits in India, where interest is compounded quarterly, even though the deposit installment is monthly.

The maturity value ($M$) is the sum of the maturity value of each installment ($P$). The exponent is the number of remaining quarters for that installment to earn interest.

$\text{Maturity Amount} = \sum_{m=1}^{N} \left[ P \times \left(1 + \frac{R_{ann}}{4 \times 100}\right)^{\frac{N-m+1}{3}} \right]$

Key Regulatory & Tax Considerations (India)

Tax Deducted at Source (TDS): Interest earned on RDs is fully taxable as per the income tax slab. Banks are required to deduct TDS at 10% if the interest earned exceeds ₹40,000 (₹50,000 for senior citizens) in a financial year (subject to change). (Form 15G/15H can be submitted to avoid TDS).
Liquidity: RDs have a mandatory lock-in period of 3 months. Premature closure after this period generally incurs a penalty, often involving a reduction of the interest rate to the rate applicable for the period the deposit remained with the bank, plus a small penal charge.
Loan Against RD: Banks typically allow a loan/overdraft facility against the security of the RD receipt, up to 90-95% of the deposit value.

Frequently Asked Questions (FAQs) for Bank Promotion Exams

Is there a difference in compounding frequency for RD and FD in banks?

Yes. While Fixed Deposit (FD) interest is usually compounded quarterly, it is paid out (or re-invested) annually. Recurring Deposit (RD) interest is calculated on monthly installments but compounded quarterly. This quarterly compounding is essential for accurately computing the maturity amount on RDs.

What is the minimum and maximum tenure for a Recurring Deposit?

The minimum tenure for a Recurring Deposit is typically 6 months. The tenure can be in multiples of 3 months thereafter (e.g., 9, 12, 15 months). The maximum tenure usually goes up to 10 years (120 months).

If a customer misses an installment, what is the bank's penalty/procedure?

Banks levy a penalty for default on monthly installments, typically charged as a fine (e.g., ₹1.5 to ₹2 per ₹100 of installment) for the month of default. If the default continues for a specified period (e.g., 6 consecutive months), the bank may have the right to prematurely close the RD account.

Can a bank customer nominate a beneficiary for an RD account?

Yes, nomination facility under Section 45ZA of the Banking Regulation Act, 1949, is available for Recurring Deposits. This is crucial for smooth claims processing in the event of the depositor's demise.

What is the required documentation for opening an RD account?

For KYC-compliant customers, no additional documentation is needed. For new customers, Proof of Identity (e.g., PAN Card, Aadhaar Card) and Proof of Address (e.g., Utility Bill) are required, similar to opening a Savings Bank Account or FD.

Professional Recurring Deposit (RD) Calculator

Banker's Guide: Understanding RD Calculation & Regulations in India

The Logic Behind Your RD Maturity (Quarterly Compounding)

Key Regulatory & Tax Considerations (India)

Frequently Asked Questions (FAQs) for Bank Promotion Exams