Recurring Deposit Account

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Recurring Deposit Account

Post by rajathadri on Fri Jul 02, 2010 4:42 pm

Banks provide four different types of accounts, which are as follows:

(1) Savings Bank Account

(2) Current Bank Account

(3) Fixed Deposit Account

(4) Recurring (or cumulative) Deposit Account

Now let us study about Recurring Deposit Account.

To encourage the habit of saving among low and middle income groups, banks and post offices provide Recurring Time Deposit schemes.

Under this scheme, an investor deposits a fixed amount every month for a fixed time period. This fixed time period is called maturity period.

After completing the maturity period, the investor gets the amount deposited with the interest. The total amount received by the investor is called maturity value.

In this scheme, the interest is compounded quarterly at a fixed rate. The rate of interest is revised from time to time.

Now, let us solve some more examples to understand the concept better.

Example 1:

Suresh has a Recurring Deposit Account in a bank. He deposits Rs 1000 per month for one year. At the time of maturity, he gets Rs 19020. What is the rate of simple interest?

Solution:

It is given that:

Money deposited per month, p = Rs 1000

Maturity period, n = 12 months

We know that,



It is given that:

Amount of maturity = 19020

p × n + S.I. = 19020

1000 × 12 + 780r = 19020

780r = 19020 − 12000

780r = 7020



Thus, the rate of interest is 9% per annum.

Example 2:

Abhishek has a Recurring Deposit Account in a bank for 2 years at 10% p.a. simple interest. If he gets Rs 3750 as the interest after maturity period, then find the monthly instalment and the amount of maturity.

Solution:

Let the monthly instalment be Rs x.

It is given that r = 10%

n = (2 × 12) months = 24 months

We know that,



\ Monthly instalment = Rs 125

Amount of maturity = p × n + S.I.

= 125 × 24 + 3750

= 6750

Thus, the monthly instalment is Rs 125 and amount of maturity is Rs 6750.

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