Interest FDs in India: Earn Steady Income with Fixed Deposits

A Fixed Deposit (FD) is a financial tool offered by banks and other financial institutions, where you deposit a specific amount of money for a fixed period at a predetermined interest rate. Compared to savings accounts, FDs offer higher interest rates and assured returns, making them a safe way to grow your money.

There are different types of FDs:

• Cumulative FD: In a cumulative FD, the interest is compounded over time and added to the principal at the end of the maturity period. This type is ideal for individuals who do not need immediate access to their funds but want their money to grow over the long term.
• Non-Cumulative FD: In a non-cumulative FD, the interest is paid out regularly—monthly, quarterly, semi-annually, or annually—while the principal is returned at maturity. This is suitable for individuals who need a stable income to cover monthly expenses or for retirement planning.

For those seeking regular monthly income, a monthly payout FD is the best option. It provides guaranteed cash flow, helping retirees, homemakers, and other investors manage their finances without touching the principal amount.

When you opt for a Fixed Deposit with a monthly interest payout, the bank calculates the annual interest on your investment and divides it into 12 equal parts. These amounts are then credited to your account every month, ensuring a steady income stream without touching your principal.

For example:

• Principal Amount: ₹1,00,000
• Interest Rate: 7.25% per annum

The monthly interest is calculated as:

Monthly Interest = Principal × Annual Interest Rate ÷ 12

So, you would receive approximately ₹604 every month as interest, while your original investment of ₹1,00,000 remains safe. This setup is particularly beneficial for individuals who rely on regular income, making monthly interest FDs a smart choice for financial stability and planning.

The Rate of Interest on a Fixed Deposit (FD) is not the same for every individual or scenario—it varies based on several factors. Understanding these can help you choose an FD that best meets your financial goals.

Deposit Tenure

Short-term FDs (from 7 days to 1 year) typically offer lower interest rates. Long-term FDs (2–10 years) generally provide higher returns, although rates can fluctuate with market conditions.

Bank or Financial Institution

Each bank has its own FD rates. Established banks, such as ICICI Bank, often offer competitive rates along with assurance and ease of withdrawal.

Type of FD

• Regular FD: Applicable for senior citizens below 60 years of age.
• Senior Citizen FD: Adds 0.5%–0.55% to the interest rate, ideal for individuals over 60 seeking higher returns.

Economic Conditions

Interest rates are influenced by factors like inflation, repo rates, and RBI policies. These changes can increase or decrease the returns on your FD.

Principal Amount

Larger deposits may sometimes receive slightly higher interest rates. For instance, a deposit of ₹1 crore might earn a better rate than a deposit of ₹5 lakhs.

By evaluating these factors, you can optimize your FD investment and maximize returns while aligning with your financial strategy.

Interest derived from Fixed Deposits will be charged to tax under the "Income from Other Sources" category. A basic knowledge of the taxation system will help in avoiding such surprises:

• TDS (Tax Deduction at Source): If the total interest from your FD in a year is more than ₹40,000 (or ₹50,000 for a senior citizen), the bank is obligated to deduct TDS at the rate of 10%.
• Filing of Form 15G / 15H: Filing Form 15G (for individuals under 60) or Form 15H (for senior citizens) if the total income is below the taxable limit can help prevent the deduction of TDS by the bank.
• Declaration in Income Tax Return (ITR): In the case that TDS has not been deducted, you still need to declare the FD interest income from the "Income from Other Sources" in your ITR for tax compliance.

Monitoring of FD interest and TDS can make tax planning more effective and help you avoid facing non-refundable deductions.

To get the maximum benefit out of your Fixed Deposit, you may want to try out some of these effective tactics:

• Compare Rates Across Banks and Tenures: Different banks and FD tenures offer varying interest rates. Before investing, compare to ensure you get the best returns on your money.
• Choose a Senior Citizen FD: If you are over 60, consider a senior citizen FD, which typically offers 0.5%–0.55% more interest than a regular FD.
• Break your Deposit into Multiple FDs: Dividing your investment into several FDs with different tenures not only improves your liquidity but also yields better overall returns.
• Use Tenure to Your Advantage: Short-term FDs provide you with the money faster, whereas long-term FDs generally offer a higher interest rate. Align your selection with your financial goals.
• Make use of an FD Calculator: Tools like the JezzMoney FD Calculator allow you to precisely calculate your monthly income and the maturity value, simplifying your financial planning.

By following these strategies, you can achieve the highest return on your investments while keeping your money safe and accessible.

Monthly interest Fixed Deposits are particularly suitable for individuals who need a steady income and financial security. They are ideal for:

• Retirees: Retired individuals can use monthly interest payouts to supplement their pension, ensuring a consistent cash flow for daily expenses.
• Homemakers: Those managing household expenses can benefit from regular monthly income, making budgeting easier and more predictable.
• Investors Seeking Liquidity: If you want access to regular cash flow without breaking your FD, monthly payouts provide a flexible way to earn while keeping your principal intact.

Monthly payout FDs offer a combination of security, predictability, and convenience, making them a wise choice for various financial needs.