Fixed deposits, also known as term deposits, are a popular investment option in India. They offer a higher interest rate than a savings account and are considered a safe investment as the principal amount is guaranteed. This article will explore the options available to earn a monthly income from fixed deposits.
Tips for How to Earn Monthly Income from Fixed Deposits
Here are some tips for how to earn monthly income from a fixed deposit:
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Choose the Right Bank:
One of the first things to consider when investing in fixed deposits is choosing the right bank. Different banks offer different interest rates on fixed deposits, so it’s important to compare them before deciding.
You can also consider opting for a fixed deposit offered by a bank with a high credit rating, as this can provide an added layer of security for your investment.
Opt for a Longer Tenure:
Longer tenures generally offer higher interest rates compared to shorter tenures. If you want a higher monthly income, consider opting for a fixed deposit with a longer tenure.
However, it’s important to remember that longer tenures also mean that your funds will be locked in for longer.
Consider Systematic Withdrawal Plans:
Systematic Withdrawal Plans (SWP) are a convenient way to earn a steady monthly income from fixed deposits.
With an SWP, you can withdraw a portion of the interest earned on your fixed deposit monthly or quarterly. This option is ideal for those who need a steady source of income every month.
Link Your Fixed Deposit to an Overdraft Facility:
An overdraft facility allows you to withdraw more than the balance in your account. If you have a fixed deposit, you can link it to your savings account and avail of an overdraft facility against the fixed deposit.
This means that you can withdraw money from your savings account even if your balance is zero, up to the limit of the overdraft facility. This option is best suited for those who need quick access to funds.
Consider Fixed Deposits with Monthly Interest Payouts:
Some banks offer fixed deposits where the interest earned is paid monthly. This option is best suited for senior citizens who require a regular source of income.
However, it is important to note that the interest rate offered on these deposits is slightly lower than regular fixed deposits.
Diversify Your Investments:
It’s always a good idea to diversify your investments across different asset classes to minimize the risk of loss.
Consider investing in fixed deposits and other investment options such as stocks, bonds, and mutual funds to diversify your portfolio.
Keep Track of Your Investments:
It’s important to keep track of your investments and monitor the performance of your fixed deposits. Reviewing your investments can help you identify potential problems or issues and make necessary changes.
Premature Withdrawal:
You can opt for a premature withdrawal if you need to access your funds before the maturity date.
While this option allows you to access your funds before the maturity date. It is important to note that the interest earned on the deposit may be lower than the interest earned if it was held till maturity.
Types of Fixed Deposits
Here are some types of fixed deposits:
Regular Fixed Deposits
A regular fixed deposit is the most common type of fixed deposit. You can deposit a lump sum amount for a fixed tenure, ranging from 7 days to 10 years, and earn interest on the principal amount. The interest earned can either be compounded quarterly or paid out at maturity.
Cumulative Fixed Deposits
A cumulative fixed deposit, also known as a compound interest fixed deposit, is a type of fixed deposit where the interest earned is compounded and added to the principal amount.
This means that the interest earned earns interest in the next quarter, increasing the overall interest earned on the deposit.
Recurring Fixed Deposits
A recurring fixed deposit is a fixed deposit where you make regular monthly or quarterly deposits instead of a lump sum deposit. The interest earned on these deposits is similar to a regular fixed deposit.
Conclusion:
Fixed deposits are a popular investment option in India due to their safety and higher interest rate than a savings account. With various options available, it is possible to earn a steady monthly income from fixed deposits. However, it is important to consider your financial goals and requirements before choosing an investment option. You should also compare the interest rates different banks offer and opt for the option that best suits your needs.
