Exploring Fixed Deposit Options That Offer Monthly Payouts: A Regular Income Source

Fixed deposits (FDs) are one of the most reliable and popular investment options in India, known for their safety, stability, and assured returns. They provide investors with the benefit of earning interest over a fixed period, and for those looking for a steady income stream, FDs that offer monthly payouts can be an excellent solution. These FDs combine the safety of traditional deposits with the convenience of periodic payouts, making them an attractive option for retirees, salaried individuals, and anyone in need of a regular source of income.

What Are Fixed Deposits With Monthly Payouts?

Fixed deposits with monthly payouts, often referred to as Monthly Income Plans (MIP), are FDs that allow investors to receive their interest earnings monthly, instead of accumulating interest and paying it at the end of the term. These types of FDs are ideal for people who rely on their investments for regular income, such as pensioners or those with fixed financial obligations. The principal amount remains untouched, and only the interest is paid out at regular intervals.

How Do Monthly Payout FDs Work?

The functioning of FDs with monthly payouts is similar to traditional FDs, with the key difference being that the interest is paid out monthly. When you invest in a monthly payout FD, the bank or financial institution calculates the monthly interest based on the principal and FD interest rates. The interest is typically credited to your savings account or provided in the form of a cheque, making it accessible for immediate use.

The FD interest rate for monthly payout options may slightly differ from regular fixed deposits. Banks and financial institutions offer slightly lower rates for FDs with monthly interest payouts because they bear the cost of managing and distributing the payments each month. While the interest rate may be marginally lower, it still offers a stable return compared to other forms of investment, such as stocks or mutual funds, which may fluctuate.

Advantages of Fixed Deposits With Monthly Payouts

1. Guaranteed Income Stream: Fixed deposit monthly payouts provide a consistent and predictable income source, making them ideal for retirees or anyone needing regular cash inflows.
2. Safety and Security: FDs are one of the safest forms of investment. They are backed by the government’s Deposit Insurance and Credit Guarantee Corporation (DICGC) for up to ₹5 lakh, ensuring security for your principal amount.
3. Tax Benefits: While the interest from FDs is taxable, there are tax-saving fixed deposit options available for individuals looking to reduce their taxable income. By opting for tax-saving FDs, you can claim a deduction under Section 80C of the Income Tax Act.
4. Flexibility of Tenure: Fixed deposits with monthly payouts offer flexibility in terms of tenure. Whether you prefer short-term or long-term deposits, you can find an FD scheme that suits your financial needs.
5. No Capital Risk: Since the principal is not exposed to market volatility, fixed deposits provide the assurance of preserving the initial investment amount.

Choosing the Right Fixed Deposit for Monthly Payouts

When choosing a fixed deposit with monthly payouts, you must consider several factors, including the interest rate, the financial institution’s reputation, and the available tenure options. While interest rates are generally fixed, it’s worth comparing different banks or non-banking financial companies (NBFCs) to find the best FD interest rate for monthly payouts.

Interest Rates: The FD interest rates vary across banks and financial institutions, and they are typically higher for senior citizens. Therefore, if you are over 60 years old, you can benefit from special rates offered to senior citizens.

Tenure: The tenure of your FD should align with your financial goals. You can opt for short-term FDs if you need liquidity or long-term FDs for better returns.

Reputation of the Institution: Choose a bank or NBFC with a solid reputation and good customer service. A trusted institution ensures that your funds are safe, and the payouts are processed without any issues.

Liquidity: While fixed deposits are relatively liquid, premature withdrawal can come with penalties. Before committing, ensure that you won’t need to access the principal amount before the maturity date.

Taxation of Fixed Deposit Interest

One crucial consideration when investing in FDs with monthly payouts is taxation. Interest earned from FDs is subject to tax based on the investor’s income tax bracket. The tax on FD interest is deducted at source (TDS) by the bank if the interest earned exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). The applicable Fixed Deposit TDS rate is typically 10% for those with a valid PAN, and higher rates may apply if you don’t provide a PAN. However, if your total income is below the taxable limit, you can submit a Form 15G or 15H to avoid TDS deduction.

It’s also important to note that TDS is only deducted on the interest earned and not on the principal. If your income falls within a lower tax bracket, you may be eligible for a refund after filing your income tax returns.

Popular Fixed Deposit Monthly Payout Schemes

Several banks in India offer fixed deposit monthly payout schemes, each with varying interest rates, tenures, and features. Some of the popular banks and their FD schemes include:

1. State Bank of India (SBI) – Known for offering competitive interest rates, SBI provides monthly payout FDs with tenure ranging from 1 year to 10 years.
2. HDFC Bank – Offers monthly payout FDs with flexible tenure options, providing regular income at attractive rates.
3. ICICI Bank – Known for its customer service, ICICI provides FDs with monthly interest payout and flexible tenure.
4. Axis Bank – Offers both short and long-term fixed deposits with monthly payouts, catering to various customer needs.
5. Post Office Monthly Income Scheme (POMIS) – An alternative to bank FDs, the Post Office offers a reliable monthly income scheme with a fixed interest rate, though the payout structure is different.

Risks of Fixed Deposit Monthly Payouts

While fixed deposits are considered low-risk investments, there are still some considerations to be mindful of:

1. Inflation Risk: Fixed deposits may not always outpace inflation. If the interest rate on FDs is lower than the inflation rate, the real value of your returns may erode over time.
2. Liquidity Constraints: While FDs can be broken before maturity, premature withdrawal usually comes with a penalty. Therefore, it’s essential to be certain of your financial requirements before committing to long-term FDs.
3. Tax Implications: The interest earned from FDs is taxable, which reduces the effective returns. Consider tax-saving options if applicable.

Conclusion

Fixed deposits that offer monthly payouts are an excellent way to secure a steady source of income while preserving your principal. These FDs cater to those who seek regular cash inflows for daily or monthly expenses, making them ideal for retirees or anyone who prefers stability. While interest rates may vary, comparing various options can help you maximise returns. However, it’s crucial to consider the taxation aspect, particularly the Fixed Deposit TDS rate, to manage your investments effectively. Ultimately, fixed deposit monthly payout schemes remain a dependable option for those prioritising safety and regular income over high returns.