Banking is the business of receiving, safeguarding and lending of money. In this chapter, students are introduced to Recurring Deposit Account and computation of its maturity value.
Recurring deposit
Recurring deposit (RD) is a popular savings alternative to fixed deposits and long term post office schemes among investors. In a recurring deposit, one has to save a certain amount every month for a fixed tenure. RD is a deposit made by a customer in a bank, which allows the customer to earn returns on their regular deposits. In its most basic form, an RD consists of a regularised deposit along with an interest rate. A recurring deposit account enables an individual to deposit a fixed amount every month for a pre-defined period which earns interest similar to Fixed Deposits (FD). RDs can be availed by senior citizens as well. The interest rates for senior citizens deposits are higher than the regular account. A Recurring Deposit is like a Fixed Deposit. Once the RD amount has been deposited, it cannot be withdrawn until maturity. Partial withdrawals from the account are not allowed. An RD account in the post office falls under the tax exemptions umbrella as per Section 80C. Individuals can claim up to Rs. 1.5 Lakh as per annum tax exemption under this section