Types of Accounts: Recurring Deposit Account- Definition, Diagram, Types and Examples

Types of Accounts- Recurring Deposit Account: The recurring deposit is usually abbreviated as an RD account. The maturity value of the RD account involves the amount deposited by the account holder and interest compounded quarterly at a fixed rate. We have different types of recurring deposit accounts that include regular recurring deposit account, recurring deposit accounts for minors, recurring deposit accounts for senior citizens, and the last one is NRE/NRO recurring deposit accounts. This article will learn about the different types of recurring deposit accounts and some examples.

Types of Bank Accounts 

The different types of bank RD accounts are given below:

1. Regular RD Account
2. RD accounts for Minors
3. RD accounts for Senior Citizens
4. NRE/NRO RD Accounts

Now we will discuss them in detail.

Regular RD Accounts

The regular RD account is meant for Indian residents aged \(18\) years and above. This account allows holders to deposit a fixed sum in the account once every month over the pre-specified period to earn the fixed interest on the deposit amount. The compound or the straightforward interest method can be used for the interest calculation based on the account’s tenure.

RD Accounts for Minors

This account will be opened in the name of individuals under \(18.\) However, this is possible only under their parents or guardians supervision. A fixed monthly instalment and the tenure will be set when opening an account like the regular RD account. The returns can be similar or a bit higher as compared to the regular RD accounts.

RD Accounts for Senior Citizens

Banks give us dedicated RD accounts for senior citizens, i.e., \(60\) years. Sometimes the senior citizens get additional interest in RD as a comparison to the regular customers. The interest gets compounded every quarter.

NRE/NRO RD Accounts

The Non-Resident Indians (NRIs) can open Non-Resident External (NRE) and Non-Resident Ordinary (NRO) RD accounts. NRIs can earn a good amount of interest and make savings every month through such accounts on income earned outside and inside India. 

Benefits of Recurring Deposit Account

The benefits of the recurring deposit account are as written below:

1. It has a high-interest rate. One of the main benefits of a recurring deposit account is the attractive interest rate it has.
2. When you miss the monthly payment, there’s no penalty.
3. You can save for as low as six months.
4. This is the best for your short-term goals.
5. You can save bit by bit.

Importance of Recurring Deposit Accounts

This account is as old as the savings for the banking customer. Before the country was taken over by the mutual funds’ systematic investment plans (SIP), the recurring deposit was the most famous way of regularly saving money for the guaranteed interest rate. 

This account is designed to save money, and RDs are an advanced version of the fixed deposits. This account understands that you may or may not be able to save all the money at once. So that is the reason it is known as a recurring deposit.

Types of Accounts: Recurring Deposit Formula in Maths

The formula used for recurring deposit account is \(A=P\left(1+\frac{r}{n}\right)^{n t}\) where \(A\) represents the final amount procured, \(P\) represents the principal,\( r\) represents the annual interest rate, \(n\) represents the number of times that interest has been compounded, \(t\) represents the tenure.

The interest on recurring deposit can be calculated using the formula \(I=P \times \frac{n(n+1)}{2 \times 12} \times \frac{r}{100}\) where \(P\) is the instalment per month, \(n\) is the number of months and \(r\) is the rate of interest.

We can use this formula and calculate the interest of \(RD.\) Then we can add this interest with the total principal amount invested in obtaining the total area.

Solved Examples – Types of Accounts: Recurring Deposit Account (RD Account)

Q.1. Diya opens a recurring deposit account with the bank of Punjab, and the deposit Rs.600 per month for 20 months. Calculate the maturity value of this account if the bank pays interest at the rate of 10% per annum.
Ans: We have, 
Instalment per month \((P)={\rm{Rs}}\, 600\)
Number of months \((n)=20\)
Rate of interest \(\left( r \right) = 10\% \,{\rm{p}}{\rm{.a}}\)
So, \(S . I=P \times \frac{n(n+1)}{2 \times 12} \times \frac{r}{100}\)
\(=600 \times \frac{20(20+1)}{2 \times 12} \times \frac{10}{100}\)
\(=600 \times \frac{420}{24} \times \frac{10}{100}\)
\(S . I={\rm{Rs}}\, 1,050\)
Hence, the amount that Diya will get at the time of maturity is:
\(= {\rm{Rs}}(600 \times 20) + 1,050\)
\(={\rm{Rs}}\, 12,000+1,050\)
\(={\rm{Rs}}\, 13,050\)

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Q.2. Mrs Singhania opened a Recurring Deposit Account in a certain bank and the deposit Rs.640 per month for \(4 \frac{1}{2}\) Years. Find the maturity value of this account if the bank pays the interest at the rate of 12% per year.
Ans: We have,
Instalment per month \((P)={\rm{Rs}}\, 640\)
Number of months \((n)=54\)
Rate of interest \(\left( r \right) = 12\% \,{\rm{p}}{\rm{.a}}\)
So, \(S . I=P \times \frac{n(n+1)}{2 \times 12} \times \frac{r}{100}\)
\(=640 \times \frac{54(54+1)}{2 \times 12} \times \frac{12}{100}\)
\(=640 \times \frac{2970}{24} \times \frac{12}{100}\)
\(S.I={\rm{Rs}}\, 9,504\) 
Hence, the amount that Mrs. Singhania will get at the time of maturity is: 
\(={\rm{Rs}}\, (640 \times 54)+{\rm{Rs}} 9,504\)
\(={\rm{Rs}}\, 34,560+{\rm{Rs}} 9,504\)
\(={\rm{Rs}}\, 44,064\)

Q.3. Each of A and B both opened recurring deposit accounts in a bank. If A deposited Rs 1200 per month for 3 years and B deposited Rs 1500 per month for 212 years, find, on maturity, who will get more amount and by how much? The rate of interest paid by the bank is 10% per annum.
Ans: Calculating for A:
Installment per month \((P)={\rm{Rs}}\, 1200\)
Number of months \((n)=36\)
Rate of interest \(\left( r \right) = 10\% \,{\rm{p}}{\rm{.a}}{\rm{.}}\)
So, \(S . I=P \times \frac{n(n+1)}{2 \times 12} \times \frac{r}{100}\)
\(=1200 \times \frac{36(36+1)}{2 \times 12} \times \frac{10}{100}\)
\(=1200 \times \frac{1332}{24} \times \frac{10}{100}\)
\(S.I={\rm{Rs}}\, 6,660 \)
Hence, the amount that \(A\) will get at the time of maturity is:
\({\rm{Rs}} (1200×36)+Rs\, 6600 \)
\({\rm{Rs}}\, 43,200+Rs\, 6600 \)
\(={\rm{Rs}}\, 49,860 \)
Calculating for B:
Instalment per month \((P)={\rm{Rs}}\, 1500\)
Number of months \((n)=30\)
Rate of interest \((r)=10% p.a.\)
So, \(S . I=P \times \frac{n(n+1)}{2 \times 12} \times \frac{r}{100}\)
\(=1500 \times \frac{30(30+1)}{2 \times 12} \times \frac{10}{100}\)
\(=1500 \times \frac{930}{24} \times \frac{10}{100}\)
S.I \(={\rm{Rs}} 5,812.50\)
Hence, the amount that \(B\) will get at the time of maturity is:
\(={\rm{Rs}}\, (1500×30)+Rs 5812.50\) 
\(={\rm{Rs}}\, 45000+Rs 5812.50\)
\(={\rm{Rs}}\, 50,812.50\)
Now, difference between both the amounts is: \(={\rm{Rs}}\, 50,812.50-Rs\, 49,860\)
\(=Rs\, 952.50\)
Hence, \(B\) will get more amount than \(A\) by \({\rm{Rs}}\, 952.50\)

Q.4. Divyansh deposits a certain sum of money every month in a Recurring deposit account for 12 months. Suppose the bank pays interest at the rate of 11% p.a. And Divyansh gets Rs 12,715 as the maturity value of this account. What sum of money did he pay every month?
Ans: Let us suppose the instalment per month \((P)\) as \({\rm{Rs}}\, y\)
Number of months \((n)=12\)
Rate of interest \((r)=11% p.a.\)
So, \(S . I=P \times \frac{n(n+1)}{2 \times 12} \times \frac{r}{100}\)
\(=y \times \frac{12(12+1)}{2 \times 12} \times \frac{11}{100}\)
\(=y \times \frac{156}{24} \times \frac{11}{100}\)
S.I \(={\rm{Rs}}\, 0.715 y\) 
Hence, the amount at maturity will be \({\rm{Rs}}(y \times 12)+{\rm{Rs}}\, 0.715 y={\rm{Rs}}\, 12.715 y\)
Given that the maturity value \(= {\rm{Rs}} 12,715\)
So, on equating, we have:
\( \Rightarrow {\rm{Rs}}\,12,715y = {\rm{Rs}}\,12,715\)
\(\Longrightarrow y=\frac{12,715}{12.715}=\operatorname{Rs} 1000\)
Hence, the sum of money paid by Divyansh every month is \( = {\rm{Rs}}\,1,000\)

Q 5. A man has a Recurring Deposit Account in a bank for \(3 \frac{1}{2}\) years. If the interest rate is 12% per annum and the man gets Rs 10,206 on maturity, find the value of monthly instalments.
Ans: Suppose the instalment per month \(\left( P \right) = {\rm{Rs}}\,y\)
Number of months \((n)=42\)
Rate of interest \((r)=12% p.a.\)
So, \(S . I=P \times \frac{n(n+1)}{2 \times 12} \times \frac{r}{100}\)
\(=y \times \frac{42(42+1)}{2 \times 12} \times \frac{12}{100}\)
\(=1500 \times \frac{1806}{24} \times \frac{12}{100}\)
S.I \( = {\rm{Rs}}\,9.03\,y\)
Hence, the amount at maturity will be \( = {\rm{Rs}}\,\left( {y \times 42} \right) + {\rm{Rs}}\,9.03\,y = {\rm{Rs}}\,51.03\,y\)
Given that the maturity value \( = {\rm{Rs}}\,10,206\)
So, on equating, we have:
\( \Rightarrow \,\,{\rm{Rs}}\,51.03\,y = {\rm{Rs}}\,10,206\)
\( \Rightarrow \,\,y = \frac{{10,206}}{{15.03}}{\rm{ = Rs}}\,{\rm{200}}\)
Hence, the value of the monthly instalment is \({\rm{Rs}}\,{\rm{200}}\)

Summary 

In the given article, we have discussed types of recurring deposit accounts, then talked about types of recurring deposit accounts that included regular RD account, RD accounts for minors, RD accounts for senior citizens and NRE/NRO RD accounts. We glanced at the information about benefits and the importance of a recurring deposit account. You can even see the solved examples on types of recurring deposit account along with a few FAQs.

Frequently Asked Questions (FAQs) – Types of Accounts: Recurring Deposit Account (RD Account)

Q.4. What is the formula for recurring deposits?
Ans: The formula used for recurring deposit account is \(A=P\left(1+\frac{r}{n}\right)^{n t}\) where \(A\) represents the final amount procured, \(P\) represents the principal, \(r\) represents the annual interest rate, \(n\) represents the number of times that interest has been compounded, \(t\) represents the tenure.

Q.5. How is maths used in banking?
Ans: Maths is involved in keeping track of the money in a bank. Banking is the world of numbers, and Mathematics is helpful in how accounts are handled to calculate the interest rates and determine credit scores. For example, complex formulas are essential to computing interest and loans.

Q.6. Which is better, RD or FD?
Ans: When returns in FD or RD comes to the comparison, then FD seems to give the higher returns. In RD, the account holder will deposit the amount monthly; therefore, the interest is also earned accordingly. Usually, the FD amount is deposited once, and a lump sum earns a higher interest rate.

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