Fixed deposits (FDs) are a popular investment choice in India, offering predictability and attractive returns. For individuals seeking a reliable source of monthly income, especially retirees or those with fixed expenses, opting for a monthly interest payout from fixed deposits can be an effective strategy. This blog will explore how to set up your FD for monthly income, the benefits of this approach, and important considerations to keep in mind.
Understanding Fixed Deposits
A fixed deposit is a financial product where an individual deposits a lump sum amount with a financial institution for a specified period at a predetermined interest rate. Unlike savings accounts, FDs provide better interest rates and assured returns. Investors can choose how they want to receive their interest payments, including the option for monthly payouts.
Benefits of Monthly Income from Fixed Deposits
Below are some of the advantages of fixed deposit for monthly income:
- Steady Cash Flow: One of the primary advantages of choosing monthly payouts is the consistent cash flow it provides. This is particularly beneficial for retirees who rely on this income to cover daily expenses or medical bills.
- Additional Interest Rates for Senior Citizens: Many financial institutions offer additional interest rates for senior citizens on fixed deposits, which can enhance monthly income further. This makes FDs an attractive option for older individuals looking for reliable income sources.
- Flexibility in Withdrawals: While FDs typically lock in funds for a specified duration, many financial institutions allow premature withdrawals under certain conditions. This flexibility can be crucial in case of emergencies or unexpected expenses. However, they come with penalties.
How to Set Up Monthly Income from Fixed Deposits
Here are some tips to set up monthly income from FD investments:
- Choose the Right Bank: Start by researching various banks and financial institutions that offer fixed deposits with monthly interest payout options. Compare interest rates, tenure options, and other features to find the best fit for your needs.
- Select the Monthly Payout Option: When opening your fixed deposit account, specifically opt for the non-cumulative option. This allows you to receive interest payments monthly. This choice ensures that you have a steady income stream each month.
- Determine the Investment Amount: Decide how much money you want to invest in the fixed deposit. The amount you choose will directly affect your monthly income.
- Select the Tenure: Fixed deposits can have varying tenures ranging from a few months to several years. Choose a tenure that aligns with your financial goals. Longer tenures may offer better interest rates but ensure that you will not require access to these funds during that period.
- Complete the Application Process: Fill out the application form at your chosen financial institution and submit the required documents, such as identification proof and address verification. After processing, your FD will be set up, and you can begin receiving monthly payouts.
Tips to Maximise Your Monthly Income from Fixed Deposits
To increase your returns and minimize the risks in fixed deposits, consider the following:
- Use the Laddering Strategy: Instead of investing all your money in a single FD for a long period, you can spread your investments in several FDs with different maturities. This strategy is called laddering, which helps you get the benefits of competing interest rates along with good liquidity.
- Invest the Interest Received: If you do not require immediate liquidity from your FDs, you can use the interest to fund another FD. Compounding will boost your returns over time.
- Know Senior Citizen Schemes: If you qualify as a senior citizen, you can opt for special FD schemes that offer you a better rate than the standard FD scheme.
IMPORTANT NOTE:
The information provided about using Fixed Deposits (FDs) for monthly income is for general informational purposes only and may not reflect current offerings from all financial institutions. Interest rates, terms, and features of FDs can vary between institutions and are subject to change. While FDs are generally considered low-risk, returns are not guaranteed and may not keep pace with inflation, potentially affecting long-term income plans. The examples and calculations provided are for illustrative purposes only and may not represent actual returns. Tax implications and benefits mentioned are based on current regulations and may change. The suitability of FDs for regular income depends on individual financial situations, income needs, and overall investment portfolios.
Conclusion
Narrowing it down, fixed deposits can be a wonderful means of acquiring a stable monthly income, maintaining capital, as well as reducing the risk factor. You will be able to generate reliable streams of income by understanding the various types of FDs and choosing the best monthly interest payout for fixed deposits.
Shriram Unnati FD stands out in the market with its exceptional interest rate of 9.40%* p.a., inclusive of 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors.
