Fixed Deposits continue to be the flavour of the season, not just because they are one of the safest instruments of investment but also because you have Fixed Deposits that provide a guaranteed source of income in your bank account every month.
A Fixed Deposit is the sum of money you keep with a bank as a deposit for a fixed period against which the bank pays you a fixed interest rate. You can pick the mode of interest payment. There are mainly two types of modes of receiving the interest.
One is the cumulative option where the interest is compounded quarterly, paid on the maturity of the FD/ auto-renewed. The other is a non-cumulative option, which is paid in the form of monthly interest or quarterly or on maturity.
FDs with monthly interest payouts have been doing well with investors who seek regular monthly income in the form of FD interest. It is popular with retirees and those who invest in it hoping to receive a steady pension.
The big difference between other FDs and monthly interest FDs is that the investor can keep receiving some interest on the FD corpus they have invested every month, which provides him/her with liquidity. However, the rate of interest earned is slightly higher in the cumulative options.
An FD interest calculator can help you understand the interest you will earn on the other FDs and in monthly interest FDs, which will help you make an informed decision. However, you must know that the interest rate on monthly interest FDs is higher than what you will earn by letting your money sit in your current/ savings account.
Some banks offer monthly interest FDs for tenures as long as 10 years, which is a substantial period to receive an interest income.\
With an interest income coming into your account every month, you may be suspect about the quality of the FD. But these FDs are rated by reputed credit rating agencies for you to make a well informed decision.
Some of these deposits also have the option for premature withdrawals, provided you meet the requirements. You must keep in mind that breaking your FD prematurely may attract a penalty.
Some banks offer an overdraft facility against FDs, so you do not need to liquidate your FDs in case of small financial contingencies.
The interest on Fixed Deposits with monthly payouts is calculated using simple interest on the principal amount. The total annual interest is divided by 12 to determine the monthly interest. This payout is fixed throughout the deposit's tenure, providing a steady income stream.
The easiest way to calculate the interest you will earn by parking money in a Fixed Deposit that pays monthly interest is by using an online FD calculator. You simply need to visit the relevant website and enter the relevant details. Just adjust the figures till they match your relevant financial goal.
Looking to open a Fixed Deposit? Click to get started!
You can create your Fixed Deposit Asset today with an HDFC Bank Savings Account. New customers can book a Fixed Deposit by opening a new Savings Account; existing HDFC Bank can book their Fixed Deposit by clicking here.
Read more on how to get the best FD interest rates here!
*Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.