9.3.2.1 Managing institutional Banking transactions: Opening Savings accounts vs Recurring Deposit (RD) models (AICCGM)
CT1: Depositing Money in Accounts
Imagine you have two piggy banks or lockboxes at your school bank desk. In box A, you deposit money whenever you have spare cash, and you can withdraw it at any time. This represents a Savings Account. In box B, you commit to putting exactly 500 rupees inside every single month for a full year without taking anything out until the period ends. This represents a Recurring Deposit (RD) account.
Part 1
CT2: Calculating RD Interest with Tokens
Place 12 physical token trays representing 12 months on your desk. On month 1, your deposit earns interest for 12 months. On month 2, your second deposit earns interest for 11 months. By month 12, your final deposit earns interest for only 1 month. Notice how the total interest is equivalent to 1 deposit earning interest for \(12 + 11 + … + 1 = 78\) months.
Part 2
CT3: Evaluating Maturity Value
Place the total principal collected from all 12 monthly deposits in a green stack on your desk. Next to it, place a smaller green stack representing the earned interest. Combine both stacks together into a single container. This combined total is the Maturity Value \(MV\) that the bank pays you at the end of the tenure.