Are you someone who refrains from investing in market-linked instruments precisely because you’re afraid of losing your hard-earned savings to unforeseen fluctuations? If yes, then Fixed Deposits (FDs) may be the right alternative for you. Considered to be one of the safest avenues to park your assets in, FD account holders are eligible to reap periodic returns during the period that their funds remain locked in, which is called the ‘tenor’ of the FD plan.
Fixed deposit schemes are offered by financial institutions including banks, building societies, Non-Banking Financial Companies (NBFCs), and credit unions. Since these plans are highly customisable, you, as an FD account holder, are given complete control over the tenor and payout frequency of your scheme. Hence, you can opt to receive your interest payouts on a fortnightly, monthly, quarterly, or even yearly basis.
Depending on your unique financial aspirations, you have the option to pick between non-cumulative and cumulative FDs as well. The former provides regular interest payouts, as mentioned above, whereas the latter entitles you to a full-and-final disbursement, which is initiated when the fixed deposit hits maturity.
Monthly payout FDs are a subset of non-cumulative deposit accounts. Usually, when compared to its cumulative counterpart, non-cumulative deposits come with lower bank FD interest rates. However, the perks offered by a monthly payout FD, including a steady inflow of revenue and liquidity benefits, more than compensate for this digression.
Advantages of Monthly Interest Payout FDs
Fixed deposits, especially monthly payout FDs, enjoy great traction and popularity amongst the masses, which can be attributed to the following reasons:
- They cultivate healthy saving habits in individuals, motivating them to save up for a stretched period of time
- The premature withdrawal facility permits account holders to withdraw their funds, in case of an emergency
- FDs offer higher rates of interest when compared to savings/current accounts
- Monthly payouts can serve as an additional source of income
- In case of the account holder’s untimely demise, the nominees continue to obtain interest payouts
- One can get tax benefits of up to ₹ 1.5 Lakhs
- Senior citizens can enjoy higher rates of interest
- Available tenors range between 7 days to 10 years
- Some financial institutions offer an overdraft facility, which helps individuals obtain credit without liquidating their fixed deposits
How to Calculate FD with Monthly Payout?
Almost all financial institutions that offer fixed deposit schemes feature an FD calculator on their web pages, which you can use to get an idea of what your monthly interest payouts may look like. Explained below is a general process that you can follow, to effectively use such online tools:
Step 1: Open the official website of the financial institution from which you wish to book an FD.
Step 2: Browse through the site and tap on the tab/button that reads ‘Fixed Deposit Calculator’.
Step 3: Type in your deposit amount, the FD subtype, and the tenor you wish to go for.
When you enter these data points, the online calculator will display the interest you’d be eligible to obtain every month, along with the aggregate interest amount. You can also use these calculators to estimate the monthly interest for a ₹1 Lakh Fixed Deposit.
How to Convert Annual Interest Rate to Monthly Interest Rate
If you have been quoted an annual interest offering and wish to convert the same to a monthly interest rate, then follow a few simple steps, as mentioned below.
- Divide the yearly rate by 100, to convert it into decimal format
- Then, subtract 12 from the decimal-format annual rate that you just derived
- Now, multiply the yearly rate by the interest amount quoted to you. This number will reflect your monthly rate
- Afterwards, multiply the monthly rate by 100, to arrive at your monthly interest rate, which will be in terms of percentage
How To Close Your FD
Some fixed deposit schemes allow you to prematurely withdraw your assets and close the scheme before it concludes its term. However, it is important to note that this facility is subject to a small penalty, which is imposed by the financial institution providing the fixed deposit plan.
For offline methods, you’ll be required to visit your FD provider’s nearest branch and fill out a form. After you do so and submit your premature withdrawal application, the financial institution will process the request and charge your account with the penalty. Then, your funds will be transferred back to your bank account and the documents that you initially submitted, for opening an FD account, will be returned to you.
Most financial institutions allow you to initiate the premature withdrawal process online, too, eliminating the need for site visits.
In order to close your fixed deposit plan online, just follow the following steps:
- Visit your provider’s website
- Enter your user credentials to log in to your account
- Browse to the ‘Fixed Deposit’ tab and tap on the ‘Close Fixed Deposit’ button
- Select the FD account you wish to close prematurely
- Follow the identity verification steps as prompted, in order to authenticate your application
- Confirm your request by completing an e-mail or text message verification
That’s it! After your application has been processed, your post-penalty assets will be transferred back to your bank account.
