What is EMI?
EMI or Equated Monthly Instalment is a fixed amount of money paid by a borrower to a lender every month at a specified date to pay off a loan in a given time period.
What are the factors that decide an EMI?
EMI is dependent on the following factors.
- Principal – the amount borrowed
- Rate of Interest
- Tenure of the loan
An EMI is made up of a certain amount of the Principal borrowed and a certain amount of Interest.
EMI = Interest Component + Principal Component
The first EMI has the highest interest component and lowest principal component.
With every instalment, the interest component decreases and principal component increases.
The last EMI has the lowest interest component and highest principal component.
What is Fixed Deposit?
Fixed Deposit also known as FD is an investment instrument offered by banks.
You deposit a certain amount of money in a bank as a fixed deposit and earn a higher interest rate than a savings account.
“Interest earned on a fixed deposit account is taxable.”
The time for which you can create a fixed deposit depends on the bank you are opening your FD account. Generally, it is between 7 days to 10 years.
Once you put your money in a fixed deposit account then, it is locked until maturity.
If you want to withdraw your money before maturity then, you have to pay a penalty amount which varies from bank to bank.
What is Recurring Deposit?
Recurring Deposit or RD is an investment option offered by banks where we deposit a certain sum of money every month for a fixed number of months at a given rate of interest.
A Recurring Deposit account is different from a Fixed Deposit account. In an FD account, we invest a lump sum and wait for it to mature. So, the FD account earns interest throughout its investment period.