Home Investments Other Invesments What are Reinvestment Deposits?

What are Reinvestment Deposits?

By
Randolph Rowe
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An investment in a Reinvestment Deposit is one way in which to experience the miracle of compounding. The interest on the amount that has been invested is calculated and added to the principal. Every succeeding due date for interest, the interest is calculated on the original amount invested plus all the accumulated interest of the preceding periods. The interest is generally compounded at the end of every calendar quarter. Reinvestment deposits are a staple offering of most banks

Calculation of Maturity Value

The formula for computation of the maturity value of a Reinvestment Deposit with quarterly compounding is:

MV = P (1 + r)n ÷ 400

r = rate of interest

n = number of quarters

P = principal amount

MV = maturity value

Terms

  • The period of the deposit could be from 6 months to 10 years;
  • Minimum deposit accepted is Rs.1,000/- and, thereafter, in multiples of Rs.100/-. Any amount could be renewed. There is no ceiling on the amount that could be invested;
  • Interest is calculated every quarter, added to the original investment and compounded thereafter;
  • Premature withdrawal is allowed but is usually subject to computation of interest at a reduced rate e.g.1% per annum lower than the originally contracted rate;
  • Interest is subject to deduction of tax at source;
  • The investor can borrow up to 90% of the amount standing to his credit in the account.
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Randolph Rowe
Randolph Rowe is a professional banker and former General Manager of Small Industries Development Bank of India (SIDBI). He brings with him the wealth of 34 years of all-round experience in the banking sector - comprising 12 years with IDBI and 22 years with SIDBI - which he combines with his flair for writing.

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2 COMMENTS

  1. The more I read about compounding interest the more attractive it gets! Reinvestment deposits seem like another great way to make money from the money you already have. Even more attractive than fixed term deposits, really.
    There don’t seem to be any drawbacks, apart from the penalty rate for early withdrawal, but even that doesn’t seem too bad.

  2. Investment redeposited or compounded quarterly is reinvestment deposit. The best part is that money can be borrowed or 90% of the sum can be credited. But what does the tax deduction at source means? Tax deducted at the time of receving the amount or ? Baring this point the article clearly explained the concept.

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