Thursday, June 20, 2024


Tips for Laddering Your Fixed Deposits for Maximum Returns

PUNJAB NEWS EXPRESS | May 25, 2024 04:46 PM

Looking to invest in Fixed Deposit (FDs) for high returns but worried about locking away your funds for too long?  

FDs are known for their safe and predictable returns. However, their fixed term is a concern for many investors. Breaking them early could mean penalties or lost interest. This becomes a challenge if you want to strike a balance between capitalising on good interest rates and maintaining funds availability for other needs. 

FD laddering can be your go-to strategy to combine the benefits of high interest rates and liquidity. Let’s understand how. 

What is FD laddering? 

FD laddering is a strategy where you spread your investment across multiple fixed deposits with different maturity dates. Each deposit matures at different intervals, ranging from short-term to long-term durations, which creates a ladder of investments. Hence, the name FD laddering. 

How does it work? 

Let’s say you have ₹10 lakh to invest. Instead of putting all in one FD, you create five FDs of ₹2 lakh each, maturing in 1, 2, 3, 4, and 5 years, respectively. After the first year, your first FD will mature. As each fixed deposit matures, you can reinvest it at the current interest rate or use the proceeds as needed. 

This way, you always have access to a portion of your savings while still benefiting from the higher interest rates of long-term deposits. 

Tips for laddering your FDs for maximum returns 

Here are 5 tips to help you ladder your FDs in the most effective manner: 

  1. Evaluate your goals to create a well-planned strategy 

Before creating a ladder, assess your financial goals, risk tolerance, short-term expenses, long-term objectives, or emergency funds requirements. This will guide you in deciding the number of ladders and the amount in each FD to optimise returns and meet your specific needs. 

  1. Diversify maturities 

The longer the deposit, the greater the earnings. So, strategically spread your fixed deposits across different maturity periods, such as short-term (3-6 months), medium-term (1-3 years), and long-term (3-5 years or more). This method can help you get regular liquidity and capture the best interest rates across different periods. 

  1. Choose FDs with high interest rates 

You can choose INDIE Fixed Deposits by IndusInd Bank to secure a competitive interest rate of up to 7.75% p.a. There are multiple benefits of booking a fixed deposit with INDIE that enhance your FD laddering approach, such as: 

  • A minimum deposit requirement of just ₹1, 000
  • Different types of FDs
  • Auto-sweep facility
  • Multiple payout options
  • Feature of making payments directly from your FD if your bank account balance runs low. 

Book your INDIE Fixed Deposit today! Enjoy a 100% digital experience with exclusive banking services at your fingertips. 

  1. Use laddering for tax-saving FDs too 

Tax-saving fixed deposits offer tax deductions under section 80C of the Income Tax Act and come with a five-year lock-in period. 

Simply deposit your investible surplus in the tax-saving FDs every year regularly for five years. After the first five years, you will get the maturity proceeds from your first tax-saving FD. Following that, you will receive the maturity proceeds from the remaining FDs each year, i.e., the second, third, fourth, fifth, and so on. 

This method ensures that you maximise your tax savings while keeping funds accessible over different years. 

  1. Monitor interest rate trends 

It is important to stay updated about the interest rate trends. This can help you decide when to reinvest your maturing funds and whether to adjust the lengths of new FDs to benefit from higher rates. Such an approach keeps your investments aligned with the best available rates and makes each tier of your ladder contribute to your savings growth. 

The bottom line 

By following these tips, you can effectively ladder your fixed deposits and maximise returns. This also means you no longer have to choose between the security of FDs and the liquidity of your funds. 

So, spread your FDs across different maturities to protect your investments against interest rate fluctuations and eliminate the risk of penalties for early withdrawal. Let your FDs reach their full potential and earn the highest returns possible.

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