Recurring Deposit (RD) - A magic of interest compounding

I would like to share one of my experiences in the life.  Year back I had an old motorbike.  So I thought to buy a new one.  For that I needed Rs. 60,000/-.  But I was unable to collect that much money together.  I planned to apply for a loan and approached the Bank.  The procedure of the loan was very complicated because, they asked me to produce bank statements, cheques and we should pay the margin money also.  So I left that plan.

Then I thought to save a particular amount every month for a year from my income.  So planned to start a savings account.  But the problem with the saving account is there is a possibility to withdraw money at any time.  If so, our savings will not be enough for a year to buy a motorbike.

So I enquired in a bank that any other plan, which is suitable for my need.  One of the bank staff introduced me about the Recurring Deposit (RD).  This deposit can be start for a particular period (12 months to 120 months) with fixed monthly installment.  The interest of this deposit is same to the Fixed Deposit (FD).  No TDS(Tax Deducted at Source) is deducted for RD.  If we are unable to continue the deposit, we can withdraw the amount, but must pay a nominal penalty for that.  The main attraction of this deposit is Quarterly Interest Compounding (monthly interest is calculated on monthly balance and added to balance in every 3 months).  So I started a RD for a year with a monthly installment of Rs. 5000 and the interest rate is 7.5 % per annum. 

The Table shows the comparison of Savings Bank and Recurring Deposit
for same installment amount

Successfully I completed a year and I withdrew Rs. 62480/- with interest.  Really it was apart my expectation.  Now I have a new motorbike.  Next I am going to start new RD for 3 years to buy a car.  If you have a goal for any purpose in your life, I am sure that the RD will support you.  Wish you all the best.

15 comments:

Babli said...

Heartiest congratulations for your new motorbike. Though you have gone through many hurdle and faced lots of worst situation but I appreciate that you got success and able to buy a new motorbike. Absolutely marvellous.

kalaiselvisblog said...

congrats buddy... this post is really a valuable one... thanks 4 sharing ur success & giving a way of success 2 us... my best wishes 4 ur next goal of buying a car...

Kalyan said...

Hope it reaches out to today's youngsters who are more intent on spending everything rather than saving something.

Binu Thomas said...

Nice article Krishna to explain how RD works!!

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Rajesh said...

Congratulations on your new bike.

Jeevan said...

That's interesting and worth saving scheme! Sure will recommend it if anyone needed! Congrats Krishna. Best wishes on your interest to get a car soon.

TheBluntBlogger said...

I am really bad with money. This was an insightful post. and congratulations for the new bike. good luck for the car :-)

Arti said...

So nice of you to share your experience! Will surely help many. Congrats on your new bike too!

sm said...

nice post
RD is good choice to save money

Team G Square said...

Wow , now we can see more adventures from you and your bike . All the best for your car .

R.Ramakrishnan said...

Good planning ! Best of luck for the car.

Thaikaden said...

It's very nice to share good things, which will be helpful to others. Like your good mentality. Let your next DREAM come true!

Krishna said...

@All
Thanks for leaving a inspiring comment on my blog post... please come again

Sandhya said...

I always liked to save money via RD account. Nice of you to explain this in detail. This is a very good method!

naimishika said...

nice post. It will inspire people to deposit on RD. Thanks for sharing