Fixed deposits (FDs) are a popular savings tool in India, offering a safe and reliable way to grow your money. One aspect that makes FDs particularly attractive is the option of monthly payouts. These can be very useful in financial planning.
FDs typically lock in your money for a specific tenor, during which you earn interest. When you choose monthly payouts, the interest earned is paid out to you every month. This provides a steady income stream. These earnings can be used to fulfil various financial needs.
Benefits of FD Monthly Payouts
Monthly payouts help create a regular and predictable income stream. This can be quite useful for retirees or those who need a steady cash flow to manage their monthly expenses. It can also be an excellent way to supplement your primary income. Such earnings make it easier to cover your day-to-day expenses.
With a fixed amount coming in every month, it also becomes easier to plan and budget your expenses. FD monthly payout can help you meet your expenses without dipping into your savings. This includes utility bills, groceries, and other necessities.
How FD Monthly Payouts Fit into Financial Planning
Here are some ways in which the payouts can affect your finances, helping you achieve your goals:
- Retirement Planning: Monthly FD payouts for retirees contribute to their pension income, ensuring increased financial security during retirement. Knowing that there is a guaranteed income every month can bring peace of mind to retirees.
- Education Fund: Parents can use the payouts to pay for their children’s education fees. It can also be used to pay for living expenses if studying in a different city or country. The amount can be utilised to meet other expenses like the examination fee, buying a laptop, and so on. This helps lower the need to take education loans and avoid the burden of debt.
- Emergency Fund: Monthly payouts ensure you can effectively manage small financial emergencies. While the principal amount remains invested, the interest provides liquidity. This helps you access the needed amount without having to break the FD prematurely.
Let’s consider the example of Mr. Sharma, a 60-year-old retiree, to understand how FDs with monthly payouts can help. Assume he invests ₹10 Lakhs in an FD with a bank offering a 6.50% p.a. interest rate with monthly payouts. He receives ₹5,417 per month as interest (calculated on a simple interest basis). This monthly income helps him cover his utility bills and grocery expenses. It helps reduce Mr. Sharma’s dependency on his savings.
Things to Keep in Mind When Booking an FD with a Monthly Payout
Here are some considerations you should know about before booking an FD:
- Interest Rates: It’s crucial to compare and choose the issuer that offers the best returns. For instance, Bank A might offer 6% p.a., while NBFC A offers 7% p.a.
- Tax Implications: The interest earned is taxable under the Income Tax Act of 1961. It’s important to factor in the tax implications on the interest income. Senior citizens can submit Form 15H to avoid TDS if their total income is below the taxable limit. Meanwhile, others can submit Form 15G under similar conditions.
- Premature Withdrawal: Understand the penalties for premature withdrawal. Knowing about these charges can help you plan for any withdrawal before the end of the tenor. Different institutions have different penalty structures. Thus, it is important to be aware of these before investing.
- Tenor Selection: Choose the tenor based on your financial goals and needs. Longer tenors typically offer higher interest rates. However, they also lock in your money for a longer period. Ensure that the chosen tenor aligns with your future financial plans.
- Institution’s Credibility: It is essential to choose a reputable bank or NBFC for your FD. If you opt for an NBFC which usually has higher interest rates, ensure that it has high safety ratings. These are usually provided by authorised rating companies like CRISIL. This is important as FDs by NBFCs are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
FD monthly payouts are a valuable tool in financial planning. These help generate a reliable and steady income stream. Whether you are planning for retirement or funding education, FDs can play a crucial role.
Effectively incorporate FD monthly payouts into your financial strategy. This will enable you to enjoy financial stability and peace of mind. Also, compare the interest rates offered by different issuers before booking an FD. For this, you can consider visiting digital financial marketplaces like Bajaj Marktes. You can check offers from various issuers and compare the returns you can get by using the FD calculators easily available on such websites. Maximise the benefits of FD monthly payouts and achieve all your financial goals.