Recurring Deposit (RD) Calculator

What is a Recurring Deposit (RD)?

A Recurring Deposit (RD) is a type of term deposit where you invest a fixed amount of money at regular intervals, typically monthly, for a specified period. At the end of the term, you receive the total amount invested plus the interest earned. RDs are popular for their flexibility and ability to inculcate a savings habit.

The Recurring Deposit Formula

The formula for calculating the maturity amount of a Recurring Deposit is:

\[A = P \times \frac{(1 + r)^n - 1}{r} \times (1 + r)\]

Where:

• \(A\) = Final amount
• \(P\) = Monthly deposit amount
• \(r\) = Interest rate per compound period (annual rate / compound frequency)
• \(n\) = Total number of compound periods

Step-by-Step RD Calculation

1. Determine the monthly deposit amount (P), annual interest rate, compounding frequency, and term.
2. Convert the annual interest rate to decimal form (divide by 100).
3. Calculate the interest rate per compound period (r) by dividing the annual rate by the compound frequency.
4. Calculate the total number of compound periods (n) by multiplying the compound frequency by the term in years.
5. Apply these values to the RD formula to calculate the final amount (A).
6. Calculate the total deposits by multiplying the monthly deposit by the number of months.
7. Subtract the total deposits from the final amount to get the interest earned.

Example Calculation

Let's calculate the RD maturity amount for a monthly deposit of $500, an annual interest rate of 5%, compounded monthly, over 5 years:

1. \(P = \$500\), annual rate = 5% = 0.05, compound frequency = 12 (monthly), term = 5 years
2. \(r = 0.05 \div 12 = 0.004167\) (monthly interest rate)
3. \(n = 12 \times 5 = 60\) (total compound periods)
4. \(A = 500 \times \frac{(1 + 0.004167)^{60} - 1}{0.004167} \times (1 + 0.004167) = \$33,524.16\)
5. Total deposits = \$500 \times 60 = \$30,000
6. Interest earned = \$33,524.16 - \$30,000 = \$3,524.16

Visual Representation

The green portion represents the total deposits ($30,000), and the blue portion represents the interest earned ($3,524.16).