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    Monthly Interest Payout Fixed Deposit

    A Fixed Deposit is an investment which offers higher rates of interests as opposed to a regular savings account. The account holder is required to park a significant amount of money in a financial institution for a predetermined tenor. The tenor typically ranges from 1 month to 5 years. The deposit will be held by a fixed interest rate that can be either received by the account holder in regular intervals i.e. fortnightly, monthly, quarterly or yearly basis or upon maturity. For instance, an account holder who has opted for a monthly interest payout, will receive a Fixed Deposit monthly income. FD schemes are offered by institutions like banks, Non-Banking Financial Companies, building societies or credit unions.

    Fixed Deposit Scenario in the Indian market

    The risk-averse nature of the Fixed Deposit scheme combined with an assurance of high returns makes it a common investment choice in India. The rates of interest typically range from 4%-8% and are priced differently by each financial institution based on the tenor. The lower limit of deposit that can be parked is usually Rs.1,000, while the upper limit varies with each institution.

    Interest Rates on FD Offered by Indian Banks:

    The following enlists the interest rates per annum of FD in 2018 (for deposits below Rs.1 crore) offered by a few popular banks in the Indian economy:

    Name of the bank Regular Interest Rates Senior Citizen Interest Rates Minimum Limit for Deposit
    Ratnakar Bank 7.50 8.00 Rs.100
    Kotak Mahindra Bank 7.25 7.75 Rs.10,000
    ICICI Bank 7.00 7.50 Rs.1,000
    City Union Bank 7.10 7.35 Rs.100
    Axis Bank 7.10 7.60 Rs.5,000
    YES Bank 7.10 7.60 Rs.10,000
    HDFC Bank 7.25 7.75 Rs.5,000
    State Bank of India 6.85 7.35 Rs.1,000

    The interest rates mentioned in the table are applicable only to the specific tenor dictated by the banks. In the current market, Ratnakar Bank offers the highest interest rate of 7.50% and 8.00% for the general public and senior citizens respectively. The tenor corresponding to this rate is between 24 months and 60 months. The general trend reads that a longer tenor provides a higher interest rate. However, it must be noted that the longest tenors do not guarantee the highest rates. It is recommended to compare the competitive interest rates along with the preferred tenor before choosing a plan. Most of the FD schemes offer a higher interest rate i.e. 0.25%-0.50% than the regular rates to senior citizens.

    How to Calculate Fixed Deposit Monthly Interest Payout?

    A majority of the banks that offer Fixed Deposits have an online portal which enables a potential investor to calculate an estimate of the monthly interest payout that they could obtain.

    The following steps could be followed to use the FD monthly payout calculator:

    • Visit the online site of the bank where you wish to open a Fixed Deposit account.
    • Click on the Fixed Deposit option from the services enlisted.
    • If the page does not already contain the FD calculator, click on the option that leads you to the calculator.
    • Enter the size of the deposit to be made.
    • Select the desired tenor.
    • Choose the interest payout frequency option as ‘Monthly’.
    • The calculator would then formulate an estimate of the monthly interest payout corresponding to the bank’s interest rates.

    Fixed Deposit as an Investment Option

    Fixed Deposit is a popular mode of investment among the general public in India.

    The following describes a few features that make FD a profitable investment:

    • Unlike the share market, the returns of Fixed Deposits are resistant to the market fluctuations. This makes FDs a safe option for investment.
    • An investor gets an estimate of the size of the returns that they would receive upon maturity hence, enabling them to plan their finances across the full tenor of the FD.
    • Cumulative FDs are term deposit schemes which accumulate your total interest income to the returns upon maturity. Investors can opt to receive a large sum of money in a single instalment. Investors who would benefit from an amassed surplus in one go could select this scheme.
    • Non-Cumulative FDs on the other hand ensure periodic interest payouts to the investors. Individuals who seek out regular intake of cash in addition to their income, could opt for this plan.
    • The rollover feature in select FD schemes enable the account holder to reinvest the returns for a new term deposit. This ensures continued growth in savings.
    • According to the RBI guidelines, FDs up to Rs.1 lakh are insured under the Deposit Insurance and Credit Guarantee Scheme of India.

    What Happens in case of Premature Withdrawal?

    Most of the banks and other financial institutions attach penalty charges on premature withdrawals from Fixed Deposit accounts. There are two variants of FDs viz. FD with an option of premature withdrawal and FD without an option of premature withdrawal. Some banks permit partial withdrawals but not complete withdrawal of the funds before the date of maturity.

    For Fixed Deposits with premature withdrawal facility, banks usually obey the following formula:

    Rate of interest for premature withdrawal = Rate of interest at the time of investment – 1%

    This formula is generally applicable for FDs with sweep-in facility, as well FDs with a periodic interest payout frequency. Hence, preclosure or premature withdrawal could lead to loss in interest income. It is recommended that investors carefully analyse the tenor best suited to their needs while choosing a plan, to avoid premature withdrawals.

    How to Convert Annual Interest Rate to Monthly Interest Rate?

    These steps can be followed to convert annual interest rate into monthly interest rate:

    • The annual rate needs to be converted from percentage to decimal format (divide the rate by 100)
    • Divide the annual rate (the decimal form) by 12
    • Multiply the annual rate with the interest amount to obtain the monthly rate
    • Convert the monthly rate into percentage by multiplying it with 100

    Steps to Break or Close an FD Before Maturity

    Fixed Deposit schemes with a premature withdrawal facility can be closed before the date of maturity. Most banks charge a penalty for preclosure of an FD account. An account holder can visit the respective bank and file an application to close the FD. The bank would then process their request and attach the prescribed charges to the account. This would then be followed by transferring the returns to the account holder and returning any documents that were submitted while opening the account. Many banks also offer an online service to close an FD account.

    The following steps could be followed to close or break an FD account online:

    • Visit the website of the respective bank.
    • Enter your credentials such as the username and the password.
    • Click on the ‘Fixed Deposits’ option from the list of services mentioned on the site.
    • Select the ‘Close account’ option.
    • From the list of FDs, select the account that you would like to close.
    • Cooperate with any verification processes that might be requested to confirm your identity.
    • A confirmation message might be sent to your registered mobile number and email address. Proceed to confirm these.
    • After deducting the penalty charges, the returns would then be transferred to your savings account.
    • Check the updated amount on your account to confirm the receipt of the amount.
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