Maximum Benefit on FD Investment : At present, the annual interest rates on Fixed Deposit in banks for different tenures have reached 9 percent to 9.50 percent (FD Rates). This means that this is the perfect time to earn on your savings through bank deposits. Once the money is locked in FD, it is not affected by changes in repo rate or market fluctuations. Fixed Deposit Ladder can be an accurate strategy to manage investments in fixed income options and get maximum returns.
Talking about the fixed deposit ladder, this technique or strategy is good for every investor but especially for senior citizens, who have more faith in safe investment options like FD. Instead of blocking the entire money in a large FD for a long period, you can maximize your returns by dividing the FD into some parts. With this solution, you can also manage liquidity in a better way.
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Fixed Deposit Ladder
FD Ladder is an investment strategy in which your investment is divided into several FD schemes with different maturity periods. In simple words, it is like making a ladder in which every deposit amount matures at different times. Through this, maximum returns can be achieved on FD, that too without breaking it. This strategy has gained a lot of popularity in recent times.
How does this technique work (How FD Ladder Works)
In fixed deposit laddering, investors have to open multiple FD accounts simultaneously, which have different maturity periods. It can be understood like this, suppose you are planning to create an FD portfolio with Rs 20 lakh. First divide it into 5 different parts. Now deposit every 2 lakh in FD schemes with maturity of 1 year, 2 years, 3 years, 4 years and 5 years. This will keep you getting money from time to time, which you can spend as per your need.
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You can get maximum return (Maximum Return on FD)
If there is no need then you can deposit that money in FD again. For example, if your 1 year FD is over but you do not need the money then you can deposit it in 1 year FD again. Next year this FD of yours will also mature and the 2 year FD made earlier will also mature. This sequence will continue. In the long term, you will have a good amount of funds with this strategy. You can say that you will be in a position to get maximum return on your investment.
This strategy will work in emergency
Multiple FDs of different maturities help you in emergencies. If you suddenly need money, you will not have to break your FD. The FD with the shortest maturity period can be used in that emergency. Or in other words, your sudden needs can be met every year. Whereas if you had only one long-term FD, you might have to break it in case of an emergency.
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Freedom from timing rate cycle
When you use FD Ladder, you don’t need to anticipate interest rate changes to find the best time to book your FDs. You just need to book as per your ladder requirements. This magnifies the impact of interest rate changes as some FDs can be booked at lower rates, while others can be booked at higher rates. You may not be able to book all your FDs at the highest rates, but you are protected from getting the lowest rates on all your investments due to the changing booking times and interest rates.