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Recurring Deposits (RD) are often touted as the most straightforward investment programmers around in the Indian financial market. Widely used by middle-income investors, an RD helps to accumulate a lump sum over a period with regular small investments. Using an RD calculator, individuals can gain insights into their future savings to plan accordingly.
However, there might be situations when the investor wants to withdraw the money before maturity. Let’s see how the RD calculator can be used in such a situation and how early withdrawal impacts RD account in the post office.
Understanding the RD Calculator
The RD calculator is a simple and convenient digital tool that provides an estimate of the returns you will get at the end of your RD tenure. Inputs required to use this calculator are – deposit amount, rate of interest, and the tenure of the deposit in months or years.
Let’s say, for example, you have an RD account in the post office where you invest Rs 5000 per month at an interest rate of 7% for a tenure of two years. The maturity amount, at the end of two years using an RD calculator, comes to Rs 1,31,072.
The result table of the RD calculator typically showcases a monthly breakdown of the total investment, the interest earned in each month, and the maturity value after each month. This table provides a clear picture of how much your savings grows each month.
Can You Withdraw Your Recurring Deposit Early?
Early withdrawal or premature closure of the recurring deposit, while it is an option in case of financial urgencies, is discouraged around the Indian financial market mainly due to its consequences.
In the case of the RD account in post office, premature withdrawal is allowed after a year, but it comes at a cost. The post office deducts a nominal fee against the premature closure (usually 0.5%-1% of the deposit). Furthermore, the interest on the RD would be recalculated at a rate applicable for the period the deposit has remained with the post office, which is usually less than the rate offered for a full tenure RD.
Let’s go back to our initial example – you may wish to close your RD prematurely after 1 year. In this case, even though you invested at an interest rate of 7%, the post office will recalculate the interest at the rate valid for 1 year (let’s say it’s 6.5%). Plus, you will have to pay the penalty for the premature closure. Hence, the maturity amount you will get will reduce considerably.
Conclusion
The early withdrawal of RD is tempting but can lead to a loss of earnings. It’s an option that should ideally only be considered when there’s an emergency. An RD calculator can provide estimates on the losses you may face due to premature closure and thus help to make informed decisions. Lastly, while the RD account in the post office is reliable and beneficial, the investor must gauge all the pros and cons of trading in the Indian financial market.
Summary
A recurring deposit (RD) is a popular investment option that promises assured returns. An RD calculator is an easy-to-use tool that helps calculate the potential matured amount one can expect after a set tenure. While it is possible to withdraw RD prematurely, it’s not the most prudent financial decision due to associated penalties and recalculated interest rates. Premature withdrawal generally leads to lesser expected returns which is not favourable for the investor. However, in cases of financial emergencies, it can be a saving grace. It’s important to understand the financial implications of premature withdrawal and make informed decisions. As an investor, one should always weigh the pros and cons while navigating through the Indian financial market.
