Fixed Deposits (FDs) offer assured returns and capital safety, making them a preferred investment choice for risk-averse investors in India. While earning good returns from any investment may seem straightforward, employing strategic approaches is essential to maximize FD returns.
Here are some effective strategies to enhance your FD earnings:
Laddering Strategy
FD laddering involves dividing your investment into multiple FDs with varying maturities.
Adhil Shetty, CEO of Bankbazaar.com, says, “This approach balances returns and liquidity. For instance, instead of investing Rs 5,00,000 in a single five-year FD, you could split it into five FDs of Rs 1,00,000 each, maturing annually over five years. This ensures regular liquidity and reduces risk related to interest rate fluctuations.”
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Lock-in High Interest Rates
Interest rates on FDs are influenced by the Reserve Bank of India’s (RBI) monetary policies. In periods of high interest rates, it’s prudent to lock in these rates for longer tenures to secure better returns. Conversely, during declining rate scenarios, opting for shorter-term FDs allows flexibility to reinvest at potentially higher rates in the future.
Diversify Across Financial Institutions
Different banks and Non-Banking Financial Companies (NBFCs) offer varying FD interest rates. By diversifying your investments across institutions, you can capitalise on higher rates and reduce exposure to any single entity’s financial health.
Align FDs with Financial Goals
Tailor your FD investments to match your financial objectives. For short-term goals, choose FDs with shorter maturities to ensure funds are available when needed. For long-term goals, longer-tenure FDs can benefit from higher interest rates.
Cumulative FDs for Compounding Benefits
Cumulative FDs reinvest the interest earned, leading to compound growth over time. This option is ideal if you don’t require periodic interest payouts and aim to maximise returns over the investment period.
Online FD Calculators
Before investing, use online FD calculators to estimate maturity amounts based on different interest rates and tenures. This aids in planning and selecting the most suitable FD schemes.
Reinvest Maturing FDs
Upon maturity, assess prevailing interest rates and reinvest wisely. If rates have risen, consider longer tenures; if they’ve fallen, shorter tenures might be preferable until rates improve.
Flexibility with Partial Withdrawals
Some banks offer FDs with partial withdrawal facilities,
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