How Fixed Deposits Can Help You Generate Monthly Income

Imagine waking up to a quiet morning, sipping your favourite tea, and feeling the satisfaction of knowing that your finances are working for you. You check your bank account, and there it is—a regular, predictable deposit of interest earned from your Fixed Deposit (FD). This steady cash flow means you don't have to worry about monthly bills or fluctuating market conditions. The key to this financial peace? Non-cumulative Fixed Deposits, which allow you to generate a reliable income each month.

If you're looking for a secure and hassle-free way to boost your monthly income, Fixed Deposits (FDs) can be the perfect solution. Here’s how you can make the most of them.

What are Non-Cumulative Fixed Deposits?

A non-cumulative Fixed Deposit is a type of FD where interest is paid out periodically—monthly, quarterly, half-yearly, or annually—rather than being reinvested. This feature makes it ideal for people looking for regular income, such as retirees, individuals saving for specific goals, or small businesses in need of a stable cash flow. Unlike regular FDs, where the interest is added to the principal and paid out at the time of maturity, non-cumulative FDs give you easy access to the interest, providing consistent income every month.

Why Choose a Fixed Deposit to Generate Monthly Income?

Fixed Deposits offer several advantages that make them an excellent choice for generating monthly income:

1. Guaranteed Returns: One of the biggest draws of FDs is the guaranteed interest. Once you lock in your FD, you know exactly what your returns will be—this ensures stability and peace of mind.
2. Steady Cash Flow: For those who prefer a reliable income stream, non-cumulative FDs are perfect. By selecting the monthly pay-out option, you can rest assured that your monthly bills or other expenses are covered.
3. Flexibility in Pay-out Frequency: Unlike regular or cumulative FDs, non-cumulative FDs allow you to choose how often you receive your interest. The monthly pay-out option gives you the flexibility to adjust based on your cash flow needs.
4. Safety of Principal: Fixed Deposits are considered a low-risk investment. Your principal remains safe, and since most banks provide insurance coverage up to ₹5 lakh per depositor per bank, your funds are further protected.
5. Tax Benefits: Although FD interest is taxable, Tax Saver FDs qualify for tax benefits under Section 80C. These FDs come with a lock-in period of 5 years.

How to Generate Monthly Income from Fixed Deposits?

To start generating monthly income with your FD, follow these steps:

1. Apply for a Fixed Deposit with Ujjivan

Ujjivan Small Finance Bank offers high-interest Fixed Deposits. In case you prefer online banking, select our Digital Fixed Deposit. It’s 100% online, safe and secure. 

2. Decide on the Investment Amount

The amount you choose to invest in your FD will determine your monthly income. A larger investment results in a higher pay-out. However, it’s important to balance your FD investment with your liquidity needs—ensure you have enough access to funds for emergencies while generating income.

3. Select the Monthly Pay-out Option

You the choice to receive interest on a monthly basis. Opt for the monthly pay-out option to start generating a reliable income stream.

4. Understand the Tax Implications

Keep in mind that the interest earned on your FD is subject to tax. The amount will be taxed according to your income tax slab, which can reduce the effective yield. Consider investing in tax-saving FDs if you’re looking to maximise your returns while benefiting from tax deductions.

5. Monitor Your FD

Once your FD is active, monitor your monthly pay-outs to ensure you’re receiving the expected returns. Ujjivan sends notifications once your monthly interest is credited to your bank account.

How is the Monthly Interest Pay-out Calculated?

The monthly interest pay-out from a Fixed Deposit (FD) is calculated using the simple interest method:

Monthly Interest= (P×R×T)/100

Where:

• P = Principal amount (the amount you invest)
• R = Annual interest rate (expressed as a percentage)
• T = Tenure of the FD in years (for monthly interest calculation, this will be divided by 12 to get the monthly pay-out)

Example: Let’s say you invest ₹1,00,000 in an FD at an interest rate of 6% (0.5 as expressed in percentage) per annum for 1 year. The calculation would be:

Monthly Interest= (1,00,000×0.5×1)/100 =126,00,000=₹500

In this case, your monthly pay-out would be ₹500.

Benefits of Fixed Deposits for Monthly Income

• Low-Risk Investment: FDs are one of the safest investment options, with a fixed interest rate that is not impacted by market fluctuations.
• Reliable Income: Monthly pay-outs offer predictability, making it easier for individuals, especially retirees, to plan their finances.
• Convenience and Simplicity: After opening your FD, you don’t have to do much. The bank will automatically transfer the interest to your account, providing a hassle-free income source.