You can maximise Fixed Deposit returns and ensure liquidity with laddering. Know how it works
Investing is essential to optimise returns and outpace inflation in order to attain our goals across various life stages. Our investment strategy evolves in line with our financial objectives, income level, and age, allowing us to tailor our financial planning accordingly. Fixed Deposits (FDs) have long been a favoured investment choice for risk-averse Indian consumers. However, with varying tenures and interest rates, navigating the FD landscape can be challenging. This is where FD laddering comes into play.
FD laddering is a strategic approach to managing your fixed deposits to optimize returns while maintaining liquidity. In this article, we’ll delve into the concept of FD laddering, how it works, and how it helps Indian consumers maximize their returns.
FD laddering is a financial strategy that involves spreading your fixed deposits across multiple accounts with different maturity dates. Instead of investing a lump sum in a single FD, you distribute your funds into several FDs with varying tenures. Each FD matures at different intervals, creating a ladder of investments. Some of the key advantages of FD laddering are to balance accessibility, liquidity, and higher returns.
Suppose you have Rs 1,00,000 to invest. Instead of putting the entire amount in a single 5-year FD, you could split it into five separate FDs, each with a tenure of 1, 2, 3, 4, and 5 years. As each FD matures, you have the option to reinvest it at the prevailing interest rate or use the funds as needed. This approach ensures that you always have access to a portion of your savings while benefiting from potentially higher interest rates on longer-term deposits.
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