A monthly interest payout fixed deposit (monthly payout FD) provides a regular monthly income to the depositor in the form of an interest payout. It is a suitable investment option for individuals requiring a regular cash flow to meet monthly expenses.
Monthly interest payout fixed deposit
A monthly payout FD is a fixed deposit scheme in which the interest earned on the deposit is paid out to the depositor every month instead of being paid out at the end of the deposit tenure. This type of fixed deposit is suitable for individuals who require a regular monthly income or cash flow from their investments.
Under this scheme, the depositor receives a fixed interest amount every month, calculated based on the deposit amount and the interest rate applicable for the deposit. The depositor gets the interest in his/her savings account or any other designated account.
The deposit tenure for the scheme can vary from bank to bank and range from a few months to a few years. The interest rate for this type of fixed deposit is usually lower than that of a regular fixed deposit, as the bank pays out the monthly interest.
Fixed deposit scenario in the Indian market
Fixed deposit (FD) is a popular investment option among Indian investors, especially for those who want a secure and risk-free investment option. Investors reckon FDs to be safe as they offer assured returns with the backing of the deposit insurance scheme provided by the government of India. The demand for FDs has been consistent over the years, and it continues to be a preferred investment option among conservative investors. Several individual studies, bank data, and Reserve Bank of India statistics highlight investor trust in fixed deposits.
Interest rates on FD offered by banks in India
Banks in India offer various incentives and benefits to retain their fixed-deposit customers. Some common benefits banks offer include higher interest rates for senior citizens, loyalty bonuses, and flexible tenures. Indian banks offer a wide range of interest rates on fixed deposits, ranging from 2.5% to 8.85% per annum based on the tenure of deposits. (updated as of 23 March 2023).
How to calculate fixed deposit monthly interest payout?
To calculate the monthly interest payout on a fixed deposit, you can use the following formula:
Monthly Interest Payout = (Principal amount x Interest Rate x (1/12))/100
For example, if you have invested ₹ 1 lakh in an FD for a tenure of 1 year at an interest rate of 6%, the monthly interest payout will be:
Monthly Interest Payout = (1,00,000 x 6 x (1/12))/100 = ₹500
Therefore, you will receive a monthly interest payout of ₹ 500 for the entire fixed deposit tenure.
Fixed deposit as an investment option
Fixed deposits are considered a safe and secure investment option, with assured returns and low risk. However, the returns offered by fixed deposits are relatively lower than stocks, which are high-risk investment options. Therefore, it is essential to have a diversified investment portfolio that includes a mix of low-risk and high-risk investments to balance the risk and returns.
What happens in case of premature withdrawal?
In case of premature withdrawal, the depositor will receive a lower interest rate than when the fixed deposit account is opened. The exact penalty for premature withdrawal may vary from bank to bank, and it is usually a percentage of the interest rate applicable for the fixed deposit.
For instance, if the interest rate for a 1-year fixed deposit is 7%, but the depositor withdraws the fixed deposit prematurely after six months. The bank may apply a 1% or 2% penalty on the interest rate, and the depositor will receive an interest rate of 5% or 6%, respectively.
Apart from the lower interest rate, the depositor may also have to pay additional charges such as processing fees, foreclosure charges, or prepayment charges, which can further reduce the overall returns from the fixed deposit.
Investors should avoid premature withdrawal unless there is an urgent need for funds, which can result in lower returns and additional charges. Therefore, it is advisable to carefully evaluate the deposit tenure and the expected returns before opening a fixed deposit account to avoid premature withdrawal.
How to convert the annual interest rate to a monthly interest rate?
You can contact your bank to help convert a fixed deposit that pays monthly to one that pays annually. The bank will likely ask you to surrender the old fixed deposit and convert it into a new one.
Steps to break or close an FD before maturity
Breaking or closing a fixed deposit before maturity can result in penalties and lower interest rates. However, if you need to break or close an FD before maturity due to an emergency or urgent need for funds, you can follow these steps:
- Check the terms and conditions of the bank: The first step is to check the terms and conditions of the bank regarding the premature withdrawal of fixed deposits. This will give you an idea of the penalties, charges, and interest rates applicable for premature withdrawal.
- Visit the bank: Visit the bank where you have opened the fixed deposit account and fill out the premature withdrawal form. You must provide details such as the account number, deposit amount, and the reason for premature withdrawal.
- Pay the penalty: Once the bank verifies your details, they will calculate the penalty for premature withdrawal based on their policy. You must pay the penalty amount, which the bank will deduct from the fixed deposit amount.
- Receive the balance amount: After deducting the penalty, the bank will provide you with the balance amount through cheque or direct transfer to your account.
It is important to note that the exact process and requirements for premature withdrawal may vary from bank to bank. You should check with your bank for the specific steps and charges applicable to your account. However, it is best to avoid premature withdrawal to the extent possible.
Conclusion
If you are looking for a regular income stream or have monthly expenses, a fixed deposit that pays monthly interest may suit you. With this option, you will receive a portion of the interest earned on your fixed deposit each month, providing you with a steady income.
On the other hand, if you do not require a regular income stream and are looking to maximize your returns over the long term, a fixed deposit that pays interest yearly may be a better option. With this option, you will earn compound interest on your fixed deposit, which can result in higher overall returns over the tenure of the deposit.
FAQs
Can I get monthly payout on FD?
Yes, you can opt for a Fixed Deposit (FD) with a monthly interest payout. Many banks and financial institutions offer this option, providing a regular monthly income.
Can I withdraw interest from FD every month?
Yes, you can withdraw interest from a Fixed Deposit (FD) every month. Many banks offer FDs with a monthly interest payout option, providing regular income.
Is there a one month FD?
Yes, some financial institutions offer one-month Fixed Deposits (FDs). However, they may have varying interest rates and terms, so it’s essential to check with specific banks.
How much interest will 1 lakh earn per month?
The monthly interest on a 1 lakh Fixed Deposit varies, ranging from 2.50% to 9.11% per annum. The specific rate depends on the bank or financial institution offering the FD.
