A Fixed Deposit is a safe investment option that ensures stable interest rates, numerous interest payment options, no market-related risks, and income tax deductions. It is unaffected by market changes, so by the time it matures, you receive an assured return on your contributions.
Should you make long-term FD Investments?
An increase in Fixed Deposit rates might be positive news for depositors, but it also comes with a lot of technicalities. Even though interest rates have changed direction, people are still trying to predict where they end up or when they will peak. If you wait a little longer to schedule your FD at a higher rate, you lose out on rates that are currently rising, and if you consider long-term FDs after a few rate hikes, you could lose out if it climbs higher in the future.
Ways to make the most of FDs
You need to check the ‘laddering’ FD approach to maximise returns from your bank FDs. This laddering strategy can be employed to further benefit from rising interest rates. FD laddering is the process of spreading your FD investments among several smaller FDs with various maturities. This helps you manage your liquidity needs more effectively and allows you to generate better profits in a rising-rate environment.
Laddering benefits
You receive recurring liquidity, and your FD matures when you use laddering. It is preferable for managing liquidity up to Rs. 4 lakh of multiple FDs than holding a single FD of Rs. 20 lakh. After your basic FD ladder is put up, you need not predict when rates will rise or fall. Since separate FDs with various rates mature at various periods, you should average your interest rate on FD.
You need not prematurely withdraw from one sizable FD when you only require a modest sum. Instead, one small FD can be used while the remaining, unused ones are left alone. Not all FDs can be reserved at the highest cost, but not all FDs can be reserved at the lowest rate either. So, after building an FD ladder, get the best of both worlds: varying interest rates with regular liquidity opportunities.
Conclusion
When determining lending and Fixed Deposit rates, the policy or repo rate serves as the fundamental benchmark. As a result of the banks' use of public borrowing, a little increase in the FD rate is possible in this scenario.
0
