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Want to buy a refrigerator or TV? Manage your money by opening a Recurring Deposit account

11 Sep 2014 |By: Surbhi Kataria

Recurring Deposit account

If I plan to buy an expensive or luxury item, the biggest concern is to manage my finances in such a way that it doesn’t affect the overall budget tremendously.

I am sure I am not the only person with that sort of an issue. People belonging to the limited income group have to manage funds before investing in expensive items and there is a rampant widespread confusion about choosing the best option.

Are you wondering that I am going to coin and introduce a financial term that you wouldn’t know a thing about?

I am about to tell you about an old friend who has never let us down. The reference here is of a Recurring Account.

Nowadays it is not very frequently considered when it comes to savings but it is still a very dependable friend. It is a deposit that is offered by banks and post offices where people deposit a fixed and predetermined amount at a regular interval and they get a decent amount of interest on it. This is generally done for a fixed period and after the maturity of the period, they are free to withdraw the funds and make use of it.

Why a Recurring Account?

This option helps build up savings bit by bit in such a way that sparing a small amount every month or two months doesn’t hurt at all and the amount that gets accumulated is handsome. The main purpose of this account is to have a future expense taken care of.

You are free to make deposits as small as Rs 50 to as big and a few lakhs. Make sure that you fix an amount keeping in mind your income and budget as you cannot change this later and can neither break it up into installments.

It can be opened by individuals, and Hindu undivided Family. NRI’s need not get disappointed as they can enjoy this facility too.

Benefits

The interest is paid on maturity and is generally compounded quarterly. The rates are similar to the fixed deposit interest rates and senior citizens are generally paid 0.5% more. Computing the interest rates comes easy with the help of financial calculators offered by various banks like HDFC, ICICI, SBI, etc. You are not paid an interest for an additional deposit other than the fixed amount. You do not have to be a mathematician to understand all this!

Here is a calculator for you:

Recurring Deposit Maturity Value Calculation using Deconstruction Approach

To simplify the matter, let us put it like this. A series of three annual payments of 25 at 9% per month compounding is calculated as the total of all the future values of three single sum payments of 25 with terms of 2, 1 and 0 years respectively.

The benefits are many and there are hardly any glitches if you are investing your hard earned money with a trusted name. Do a thorough research, know your options, be aware, informed and choose. It is not as difficult as it looks and enjoy saving!

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