Fixed deposit laddering ensures your fixed deposits mature at different times. This approach provides regular access to funds and avoids tying up all your money in a single deposit.
How can you earn the maximum interest on fixed deposits with varying tenors? Interest rates on fixed deposit plans differ based on their duration. Some banks and NBFCs offer higher rates on shorter tenors, while others provide better rates on medium to long tenors. As a fixed deposit customer, you can earn better rates by using a strategy called FD laddering.
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What is FD laddering?
Fixed deposit laddering is a method a depositor can use to spread out his funds in FDs over different periods to optimise returns and maintain liquidity. Instead of locking or blocking all his funds in a single plan, in FD laddering, one can create multiple FDs with varying maturity dates.
What are the advantages of FD laddering?
FD laddering diversifies timelines:
FD laddering ensures your fixed deposits mature at different times. This approach provides regular access to funds and avoids tying up all your money in a single deposit.
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Navigate FD interest rate fluctuations:
FD laddering helps mitigate the risk of renewing a large FD when rates are low, as you’re not dependent on a single renewal time.
Access cash without penalties:
By staggering FD maturities, a fixed deposit investor can ensure regular access to cash without the need to break his or her FD prematurely, which often incurs penalties.
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Optimize returns:
Often, medium to longer-term fixed deposits give higher interest rates. FD laddering allows you to benefit from these higher rates while keeping some funds in shorter-term deposits for liquidity.
Customize your strategy:
One should plan your fixed deposit laddering strategy to your specific financial needs. It is advisable to align the maturity dates of FDs with anticipated cash requirements.
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For example, suppose you have Rs 10 lakh to invest. Instead of placing it all in a single fixed deposit (FD), you can open five FDs of Rs 2 lakh each, with maturities of one, three, five, seven, and ten years, respectively. As each FD matures at different intervals, they create a ladder. This strategy provides opportunities to either renew or utilize the funds based on your financial needs. By employing this approach, you can enjoy higher returns while maintaining regular access to a portion of your funds.
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