RD Interest Rates

Let us learn about the deposit in greater detail. 

What is an RD?

RD is a term deposit product offered by banks and Post Offices where you deposit a fixed amount every month for a fixed tenor. You are paid the accumulated wealth at the end of the term, the value of which is your accumulated principal plus the accrued interest. 

Since the RD is a typical term deposit product, the applied RD interest rates are the same as term deposits. It implies that you enjoy compounding benefits when interest is applied. 

Eligibility Criteria to Earn RD Interest Rates

The eligibility criteria for opening an RD in a bank or Post Office are identical to any term deposit. However, owning a savings account is a prerequisite. Accordingly, the following are eligible to open the account. 

• Individual savings account holder

• Minors above 10 years of age

• Minor below or equal to 10 years of age under natural or legal guardianship

• A corporate, company, proprietorship, or commercial organization

• A government organization

Features of an RD Account

You earn a fixed interest in the RD account applied at a fixed frequency to mature at the end of the selected tenor’s end. Thus, RD interest is compounded quarterly in most banks. Your maturity value is paid as the account terminates on maturity. 

Let us check out the critical features.

• The scheme teaches savings habits to the public.

• You can open an RD account for a minimum of Rs.100 to benefit small and marginal investors. 

• The RD tenor is from a minimum of six months to a maximum of ten years.

• The RD interest rates are the same as fixed deposits, higher than any other savings scheme.

• You can close your RD account prematurely without any penalty being levied.

• You can avail of a loan against the RD account as collateral up to 75% of the accumulated balance. However, this may vary across banks.

• You can pay the monthly instalment in cash, transfer, or through a registered one-time standing instruction to transfer the monthly deposit from your savings or current account. 

RD Interest Rates in Banks

The RD interest rates are similar in most banks. However, you must check out with your bank for the specifics. 

Senior citizens earn an additional 0.50% interest over the above card rates, subject to the following conditions:

• The minimum tenor must be six months.

• The senior citizen must have attained 60 years of age on the date the RD is booked.

• The minimum RD instalment must be Rs.100, and Flexi RD amount Rs.1000. 

RD Interest Rates Calculation

RD interest rates are calculated considering several factors. The typical compounding frequency in banks is quarterly. 

1. Maturity Value

   M = R [ (1+i) n – 1 ] / 1 – (1–i)  -1/3

   The variables used in the above formula are:

   M = Maturity value

   R = Monthly Installment

   n = Number of quarters

   I = Interest Rate / 400

2. Total Interest

   I = [ { P * n ( n + 1 ) } r / ( 12* 2* 100 ) ]  

   The variables in the formula are:

   I = Total accrued interest at maturity

   n = Number of months

   r = Interest rate per annum

   P = Principal 

   The Maturity Value using the above formula is obtained by:

   M = P (n) + I

   The variables used are:

   M = Maturity Amount

   P(n)  = Invested Principal

   I = Total Accrued Interest. 

RD Interest Rates for Premature Withdrawal

You can close your account prematurely to receive the closure proceeds into your operative savings account. You have to submit a written request and surrender the passbook and a duly signed withdrawal slip for the bank to process. 

RD interest rates are affected as you may not receive the contracted rate. For example, your RD tenor was five years but you withdrew money after one year. The interest rate applied is for one-year deposit period, which is lower than the contracted rate. 

Let us find out if any penal interest is levied. 

Points to note:

• No penalty is imposed for premature closure due to the account holder’s death.

• However, no penalty is imposed on individuals enjoying preferential RD interest rates like the senior citizens. 

In Conclusion

RD account is a term deposit popular among small investors due to its structure where you invest in monthly instalments, unlike lump sum investment. You can start from an amount as low as Rs.100 to warn RD interest rates applied to term deposits and higher than a regular savings account. Moreover, you enjoy all the fixed deposit benefits other than renewal as your RD account terminates on maturity.

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