How to get Monthly Income on a Fixed Deposit?

Date: 01st August 2024 | Read time: 3.5 Minutes

Getting Monthly Income from Fixed Deposits? Fixed Deposits are perhaps the most common investment option in India, offering both safety and sure stability of investment, along with assured returns. Flexibility in interest payouts is the key feature of the Fixed Deposits. For someone looking at regular disbursements say for a monthly family expense, a monthly payout of interest is quite normal. In this blog, we will explore how to get monthly income from fixed deposits, why they are so popular, and how the interest is calculated.

You will have to choose the option for a monthly interest payout at the time of opening the fixed deposit. While the interest amount would be retained to pay at the end of the tenure as a bulk amount, the bank would keep paying you interest on a monthly basis.

The interest amount one receives every month is dependent on three factors; that is, the principal amount, the rate of interest on FD, and the tenure of the FD. An FD's rate of interest is subject to change between banks; therefore, one needs to compare interest rates across banks, choose the highest interest rate as per one's requirements.

Fixed deposits with monthly interest payout are popular among retired and conservative people who require stable and predictable income. Below are the reasons:

1. Guaranteed Income

2. Safety

3. Flexibility

4. No Market Risk

Here are some benefits of availing monthly interest payouts from fixed deposits:

• Regular Cash Flow

  The amount that you receive at the end of each month is going to support you by fulfilling your daily needs or monthly expenses.

• Ease of Management

  The monthly interest can, of course, be credited automatically to your savings account, whenever required. This facilitates the management of your funds in an easier way.

• Tax Efficiency

  If your total income does not exceed the taxable bracket, you are eligible to apply for the tax rebate on the interest earned under Section 80TTA of the Income Tax Act.

• Re-investment Option

  If you do not require the monthly income at the moment, you re-invest it in another FD or investment to generate the surplus in interest payout.

[Also Read: Understanding the Basics of Fixed Deposits: Interest Rates, Tenure, and More]

The interest payable on fixed deposits with monthly payouts is generally computed on a simple interest basis. In other words, the bank is paying you interest in cash at regular intervals rather than allowing you to reinvest the interest.

Here's a simple way in which you can understand how the interest is calculated:

• Principal Amount

  The initial sum of money that you are investing in the FD.

• Interest Rate

  Rate per annum the bank is offering on the FD.

• Tenure

  The period for which the FD is made.

e.g. You make INR 10 lakhs of the investment in FD at an annual interest rate of 6%, then the bank will operate on interest calculation monthly and credit it to your account. Thus, the approximate monthly interest payout stands at INR 5,000.

Check AU Small Finance Bank’s FD Calculator.

1. Can I withdraw my FD before the tenure ends?

Yes, but an interest charge might have to be paid, and interest earned shall be a compounded paid sum.

2. Are FDs with monthly interest taxable?

Yes, interest earned on FD is taxable as per your income tax slab. TDS is also deducted wherein interest exceeds INR 40,000 yearly.

Fixed deposits with monthly interest payouts make a steady means to ensure that you are getting a steady flow of income. In case you are planning for your retirement or keeping it simple while looking for safe investment with returns coming in repeating harmonics, then FDs can be a super addition to your money portfolio. A person can make full returns with his or her mind at peace by understanding how these FDs work and most especially by selecting the best of interest rates in the strictest manner.