Home>Fixed Deposit>Monthly Interest Payout Fixed Deposit (FD)
Updated on: 18 Jan 2024 | 10 mins read
A fixed deposit scheme is a prevalent investment option for many Indians. A survey by SEBI (Securities and Exchange Board of India) says 95% of Indian households prefer FD investments for predetermined returns. Regardless of market fluctuations, you will continually earn a fixed interest on your FD investment.
Further, FDs offer higher returns than regular savings accounts while keeping the risk minimal.
Besides guaranteed returns, non-cumulative FDs help you create a regular income source. The interest you earn is paid out at periodic intervals, i.e. monthly, quarterly, semi-annually, or annually. These FDs create a regular income stream for your post-retirement years or to supplement your current earnings.
Before investing, you should understand the monthly interest payout on FD to estimate how much you can earn and its benefits.
Monthly Interest Payout on Fixed Deposit
As mentioned earlier, the monthly interest on fixed deposits can offer a steady, predictable and regular source of income. You can receive the interest income every month on a specified date. However, you will receive the principal amount back when the fixed deposit matures.
Almost all financial institutions’ fixed deposits, like Banks and deposit-taking Non-Banking Financial Companies (NBFCs), offer the monthly interest payout option. You can choose the option while opening the fixed deposit. Once selected, the monthly interest payment would start the following month.
Best Interest Rates on FDs in India
Following is the list of banks offering the highest interest rates annually for a deposit under 1 crore.
| Name of the bank | Regular Interest Rates | Senior Citizen Interest Rates |
|---|---|---|
| RBL Bank FD | 3.50% to 7.80% | 4.00% to 8.30% |
| Kotak Mahindra Bank FD | 2.75% to 7.25% | 3.25% to 7.75% |
| Canara Bank FD | 4.00% to 7.25% | 4.00% to 7.75% |
| City Union Bank FD | 5.00% - 7.00% | 5.00% - 7.50% |
| Axis Bank FD | 3.00% to 7.10% | 3.50% to 7.75% |
| YES Bank FD | 3.25% - 7.50% | 3.75% - 8.00% |
| HDFC Bank FD | 3.00% to 7.20% | 3.50% to 7.75% |
| State Bank of India FD | 3.00% to 7.10% | 3.50% to 7.60% |
How to calculate Interest for a Monthly Payout?
Most financial institutions specify the interest rate on an annual basis. To find out the monthly interest rate on the FD, you can use the yearly rate and divide it by 12. Alternatively, using the principal, you can calculate the interest amount annually and back-calculate the monthly interest rate.
However, checking the compounding frequency while calculating the monthly interest payout would be best. If the frequency is yearly, you can divide the interest rate by 12 to get the monthly rate. However, the calculation would change if the interest frequency is quarterly, monthly or half-yearly.
The following examples will help you understand how to calculate the monthly interest payout on FD.
| Example 1 | |
|---|---|
| Deposit amount | ₹50,000 |
| Interest rate | 7% per annum |
| Compounding frequency | Annually |
| Monthly interest rate | 7% / 12 = 0.005833% |
| Monthly interest amount | 0.005833% of ₹ 50,000 =₹ 291.66Alternatively,Monthly interest = (7% of ₹ 50,000) / 12= ₹291.66 |
| Monthly interest rate | ₹291.66/₹50,000= 0.005833= 0.5833% |
Referring to the above example, you can cross-check your monthly interest by calculating it with an absolute number and cross-checking it with the interest computed by simply dividing it by 12.
| Example 2 | |
|---|---|
| Deposit amount | ₹50,000 |
| Interest rate | 7% per annum |
| Compounding frequency | Half-yearly |
| Amount after a year | 50,000 (1 + 0.07/2) ^ (1 * 2)= ₹53,561.25 |
| Interest after a year | = ₹53,561.25 – ₹50,000= ₹3561.25 |
| Monthly interest amount | ₹3561.25/12 =₹296.77 |
| Monthly interest rate | ₹296.77/₹50,000= 0.0059354= 0.59354% |
If mathematical calculations prove challenging, you can use many financial institutions' fixed deposit calculators. These online calculators help you calculate the effective monthly interest rate and the interest amount. You just have to provide the following details:
- The deposit amount.
- The tenure.
- The rate of interest on an annual basis.
- The compounding frequency – annually, monthly, half-yearly or quarterly.
- Choose the mode of payout as monthly.
- Once you provide the details, you can calculate the interest income you can earn from your deposit annually and monthly.
How to Convert from an Annual Interest rate to a Monthly Interest Rate
To calculate the annual interest rate, follow the mentioned steps:
- Go to the bank's online site for opening aFixed Deposit.
- Navigate to the services section and select "Fixed Deposit."
- If there's noFD calculator on the page, click on the option guiding you to it.
- Input the deposit amount.
- Choose the preferred tenor (duration) for the FD.
- Opt for the interest payout frequency, such as 'Monthly.'
- The calculator will then estimate the monthly interest payout based on the bank's interest rates.
Advantages of Monthly Interest Payment on FD
With the non-cumulative fixed deposit, you get these benefits from monthly payouts:
- You get a guaranteed and regular source of income every month throughout the deposit tenure.
- The monthly interest payouts help you supplement the primary source of income.
- You can put the monthly interest payouts into another investment avenue and earn returns further.
- You can create a larger corpus to meet your financial goals as your savings increase.
- Monthly payouts are suitable for retired individuals because these come with a regular income stream.
How to Close your Fixed Deposit Account
Closing a Fixed Deposit with a premature withdrawal option before its maturity date involves a penalty from most banks. If the investor wishes to close their FD, they can visit the bank, fill out a form, and submit the necessary documents. The bank processes the closure request, deducts the applicable fees, and transfers the refunds to the account holder.
For added convenience, many banks offer an online option to close or break an FD account. Here are the steps:
- Visit thebank's website.
- Log in with your credentials, including username and password.
- Navigate to the 'Fixed Deposits' option among the listed services.
- Choose the 'Close account' option.
- Select the account you want to close from the list of FDs.
- Comply with any identity verification processes if required.
- Confirmations may be sent to your registered mobile number and email; verify them.
- After deducting penalty charges, the returns will be transferred to your savings account.
- Verify the updated amount in your account to ensure the successful receipt of the funds.
Final Thoughts
A non-cumulative fixed deposit scheme can create a monthly income stream for your expenses. The interest income would depend on the financial institution’s deposit rates, the tenure selected and the deposit amount. Further, senior citizens generally receive a higher interest rate than general FD accounts.
You can calculate the monthly interest amount on FD using mathematical calculations or the online fixed deposit calculator. Calculations can help you estimate the monthly payouts to budget your expenses accordingly.
You can choose fixed deposit schemes that offer the highest monthly interest rates. This would ensure maximum returns from your deposits and can grow your wealth.
FAQs
Is the monthly interest income taxable?
Yes, the interest on fixed deposit accounts is fully taxable.
What are the rules for TDS on interest income?
TDS applies to your fixed deposit interest if the aggregate interest income exceeds 40,000 in a financial year. The financial institution deducts a 10% tax at source from the interest income before crediting the interest into your account.
In the case of senior citizens, the limit is ₹50,000. If the interest income is within 50,000, there is no TDS. However, if it exceeds ₹50,000, 10% TDS will apply.
While the TDS is 10%, you might have to pay an additional tax on the interest income if you fall in the higher tax slabs. If you are in the 20% tax slab, you will have to pay another 10% tax on the interest. Alternatively, if you fall in the 5% tax bracket, you can claim a refund on the excess 5% TDS.
What are the minimum and maximum deposit amounts for the monthly interest rate?
The minimum deposit amount depends on the financial institution. Some require a minimum deposit starting from ₹1000, while others may have higher minimum deposit amounts.
As for the maximum deposit amount, there’s usually no limit.
Can I withdraw the fixed deposit before its tenure?
Yes, many fixed deposits allow premature withdrawals wherein you can withdraw the FD before the stipulated tenure. However, financial institutions levy a penalty in such cases and reduce the interest rates. It is usually charged around 0.5% – 1.00% of the interest rate.
Is a fixed deposit a good investment option?
Yes, a fixed deposit is a good investment option because of the following reasons:
- It is affordable.
- You get a guaranteed interest rate and are not exposed to volatility.
- Tax Saver FDs help you save taxes on a lock-in period of 5 years.
- Senior citizens enjoy higher interest rates and tax benefits on interest income.
- You can also choose a flexible deposit tenure depending on your needs.
Can we withdraw monthly interest on FD?
The monthly interest on FD is credited to your savings account. So, yes, you can withdraw it.
Is FD compounded annually or monthly?
FD can be compounded monthly or annually, based on the terms of the deposit.
Is monthly interest better than annual on fixed deposit?
Whether monthly or annual interest is better for you depends on your investment goals. For instance, a monthly interest payout will suit you if you need a regular income from FD.
What are the quarterly payout and monthly payout in FD?
For quarterly payout FD, the interest will be credited to your account every quarter, while for monthly payout FD, the interest will be credited every month.
Do banks pay monthly interest on FD?
Yes, banks pay monthly interest on FD provided you select that option while opening an FD.
