In this post I will explain you on how you can save money using recurring deposit. Most of you might have some or the other Insurance for which you pay yearly premiums. If you are from India, LIC/HDFC or ICICI Prudential. Insurance are very common for not just life cover but also for tax savings. In the below you will find on how you can save money using recurring deposit.
Calculations
Assuming that you have yearly insurance payment of 150,000 ( this is just an example, it can be more or less). Now if you pay lump sum amount every year you are paying 150,000. But instead if you have a recurring deposit of 12000 for 1 year.
Total amount that you pay is 12000*12= 144000
So there is a short of 6000.
Now assume that the bank is paying you an interest of 7.25 % . This I have considered taking account of current rate in most banks. If you calculate the maturity value you get 148749. Note I have used HDFC bank RD calculator.
Remaining difference = 150000-148749 =1251 ( this amount is what you need to add to your maturity amount for paying for you premium)
So the actual amount you payed = (12000 *12) + 1251 =145251
Net saving =4749 ( If there is no TDS deduction )
If you fall in 30% bracket, your net saving = 3324 ( approx)
Benefits of Recurring Deposit
- You saved 3324 or 4749 for your yearly premium of 150000.
- You have distributed your net outflow every moth so no burden on the paying premium when it is due.
- You can re-use the amount saved for other investment opportunity like Mutual Fund etc. or enjoy an extra dine out.
Do let me know your feedback and suggestions. Note that this may not be applicable in other countries. The above example is from India.
This was first published in my blog digitalab.org