Recurring deposit is a type of investment in which fixed amount on monthly basis is invested for
specific period of time. Generally, bank offers this deposit scheme. Bank deposits this amount in
investor's deposit account and credits interest amount at the time of maturity. The scheme offers
interest credit option on quarterly, semi-annually, annually or lump sum at the time of maturity.
Interest credit as a lump sum at the time of maturity is more beneficial as capital invested and
interest earned both are compounded.
Let us discuss further with real time example. An investor has capacity to invest 5000 per month. This money is invested in the Bank RD (Recurring Deposit) scheme with tenure of 2 years and rate of interest (roi) as 8.1 % per annum. Investor has chosen interest credit option as re-invest and accepts to get it back as a lump sum amount at the time of maturity. i.e after 2 years with quarterly compounding. You can use our RD calculator to compute it yourself. So over 2 years of time investor pays 5000 * 12 * 2 = 120,000 as a principal amount and earns total of 10,594.03 as interest. Thus his maturity value will be 130,594.03 which will be paid after 2 years as a lump sum amount. Please refer below image from our calculator screen.