How to maximise bank fixed deposit returns? Explained with bank FD laddering technique

livemint.com:

premature withdrawal and paying penalties Bank FD laddering is a technique that involves buying multiple FDs maturing in different time periods. Personal Finance experts suggest that investors seeking to invest in bank fixed deposits for a longer period may consider a ladder strategy. “The FD laddering strategy, outlined by industry experts, presents a valuable approach for optimising these investments," said Amit Gupta, MD, SAG Infotech.

Bank FD laddering technique involves dividing the investible amount into three or four tranches, differing in terms of amounts and periods. An investor can decide the amounts and periods basis own expectations. FD laddering involves diversifying your investment across multiple FDs with different maturity periods and interest rates.

By doing so, you create a "ladder" of maturity dates, ensuring periodic liquidity and the potential for reinvesting at higher interest rates when the opportunity arises, said Amit Gupta. The strategy begins with monitoring interest rate trends to identify optimal times for reinvestment. As each FD matures, you reinvest the proceeds in a new FD with a longer tenure, potentially yielding higher returns.

Adjusting your FD allocation to align with your liquidity needs and financial goals is also crucial, added Gupta. The benefits of FD laddering include diversification, regular access to liquidity, the potential for increased returns, and flexibility to adapt to changing interest rate environments. Furthermore, it aids in tax planning by staggering FD maturities, and optimising tax liabilities.