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.
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) )
In this,
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