Monthly Payout FD and Cumulative FD - Key Difference Explained

A Fixed Deposit (FD) is a preferred investment choice for those seeking stable and assured returns. FDs offer two interest payout options- monthly payout and payout at maturity. It's essential to understand how the interest payout option you choose impacts your income and financial goals. This blog post explains the difference between monthly payout FDs and cumulative FDs with an example, helps you understand when a monthly interest payout option makes sense and shows how tools like an FD Calculator can help you plan your investments efficiently.

What is meant by monthly interest payout?

Monthly interest payout means that the interest earned on an FD is paid out every month instead of being accumulated until maturity. This option is ideal for those who want a regular income without having to wait till the end of the FD tenure.

Formula to calculate monthly interest:

Monthly Interest = (Principal × Annual Interest Rate) ÷ 12

For example, if you invest ₹ 50 lakh at 6.60% p.a. for 3 years, the monthly interest would be:

(₹ 50,00,000 × 6.60%) ÷ 12 = ₹ 27,349 (approximately)

Monthly Payout FD vs Cumulative FD

Before choosing your FD type, it’s crucial to understand the key differences between the two options for interest payout.

Who should choose a Monthly Payout FD?

Monthly payout FDs are useful for the following types of individuals:

• Retirees who need a predictable monthly income

• Self-employed professionals looking for regular cash inflows

• People dependent on interest income to manage expenses like rent, utility bills or EMIs

• Anyone who wants liquidity without touching the principal.

If your goal is to grow your wealth and you don’t need the income right away, a cumulative FD may be better suited for you.

How an FD Calculator can help

Calculating the interest on your FD amount manually can be challenging. You can simplify the process by using the ICICI Bank FD Calculator for quick and accurate results.

• Fast and Precise Calculations: The FD Calculator helps in financial planning by providing an estimated return. To find out your returns, enter your investment amount and select how you want to receive the interest- monthly, quarterly or on maturity. You’ll instantly see the total interest earned and the maturity amount.

• Compare Tenures: You can use the FD Calculator to compare different tenures and find the one that gives maximum returns. It gives you the ability to balance your short-term requirements with your long-term objectives.

• Estimate Monthly Interest Income: The calculator clearly shows how much you will earn each month if you choose monthly interest payout. This is very beneficial for retirees or anybody whose regular expenses depend on a consistent cash flow.

• Establish Long-Term Objectives: You can plan for long-term financial goals like a child's education, a dream trip or your retirement using this financial tool.

• Examine Competitive Rates: For Fixed Deposits, ICICI Bank provides different attractive interest rates for different tenures. Use the FD Calculator to compare these rates and choose the preferred course of action for your investment.

• Easy-to-use Interface: The FD Calculator was created with ease of use in mind. This tool is very simple to use for even those folks who know very little about simple interest and compound interest.

Monthly Payout vs Cumulative FD:  A comparison for an investment of ₹ 50 lakh

When investing a large amount like ₹ 50 lakh in a Fixed Deposit, it’s essential to choose the right interest payout option based on your financial goals. Below is a comparison between the monthly payout FD and the cumulative FD, using an example with a 3-year tenure and an interest rate of 6.60% p.a.

Example Setup:

• Principal Amount: ₹ 50,00,000

• Interest Rate: 6.60% p.a.

• Tenure: 3 years

Option 1: Monthly Payout FD

• Monthly Interest: ₹ 27,349

• Annual Interest Income: ₹ 27,349 × 12 = ₹ 3,28,188

• Total Interest Over 3 Years: ₹ 3,28,188 × 3 = ₹ 9,84,564

• Maturity Amount: ₹ 50,00,000 (principal only; interest paid out monthly).

Option 2: Cumulative FD

• Interest Compounded Quarterly and Paid at Maturity

• Total Maturity Amount: ₹ 60,84,972

• Total Interest Earned: ₹ 10,84,972.

Conclusion

A monthly payout FD offers predictable cash flows and is ideal for meeting regular expenses without disturbing the principal. Meanwhile, a cumulative FD allows your money to grow steadily with the benefit of compounding, making it suitable for long-term financial plans. Whichever option you choose, using the FD Calculator can help you plan effectively, compare returns and make decisions that align with your financial priorities.

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