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What is Recurring Deposit mean?
A recurring deposit is a special kind of term deposit offered by Indian banks which help people with regular incomes to deposit a fixed amount every month into their recurring deposit account and earn interest at the rate applicable to fixed deposits. It is similar to making fixed deposits of a certain amount in monthly installments. This deposit matures on a specific date in the future along with all the deposits made every month. Recurring deposit schemes allow customers an opportunity to build up their savings through regular monthly deposits of a fixed sum over a fixed period of time. The minimum period of a recurring deposit is six months and the maximum is ten years.
The recurring deposit can be funded by standing instructions which are the instructions by the customer to the bank to withdraw a certain sum of money from his/her savings/current account and credit to the recurring deposit account.
When the recurring deposit account is opened, the maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates. If any installment is delayed, the interest payable in the account will be reduced and will not be sufficient to reach the maturity value. Therefore, the difference in interest will be deducted from the maturity value as a penalty. The rate of penalty will be fixed upfront. Interest is compounded on quarterly basis in recurring deposits.
One can avail loans against the collateral of a recurring deposit up to 80 to 90% of the deposit value.
The rate of interest offered is similar to that of fixed deposits.
The formula to calculate the interest is given as under: I = P ∗ n ( n + 1 ) r 12 ∗ 2 ∗ 100 {\displaystyle I={\frac {P*n(n+1)r}{12*2*100}}} = P ∗ n ( n + 1 ) r 2400 {\displaystyle ={\frac {P*n(n+1)r}{2400}}} where I is the interest, n is time in months and r is rate of interest per annum and P is the monthly deposit.
The formula to calculate the maturity amount is as follows:Total sum deposited+Interest on it = P ( n ) + I {\displaystyle ={P(n)}+I} = P ∗ n [ 1 + ( n + 1 ) r 2400 reference
Posted on 25 Oct 2024, this text provides information on Miscellaneous in Banking related to Banking. Please note that while accuracy is prioritized, the data presented might not be entirely correct or up-to-date. This information is offered for general knowledge and informational purposes only, and should not be considered as a substitute for professional advice.
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