Fixed Deposit Laddering: People look for many ways to invest where they can get good returns on their investments. For this, different people invest in different places. Some invest in the stock market, some deposit money in mutual funds, some make FDs in banks. But most people consider FDs as a safe way of investment. In the recent past, many banks have increased the interest rate on FDs.
That is why many people consider FD as a better option for investment. Many elderly people, especially those who are taking pension, invest their money in FD so that they keep getting returns on time. Talking about returns on FD, FD laddering is a method through which you can get more returns on your FD. Let us tell you how this method works and how it can benefit you financially.
What is FD laddering?
FD laddering is actually a strategy of investing money in FDs. Which helps you get higher returns. In this, instead of investing the entire money in one FD, you invest some amount in different FDs. Which have different maturity dates. With this you create a ladder. From time to time you keep getting funds and along with this you also keep earning interest continuously.
According to BankBazaar AGM Ravi Kumar Diwakar, in FD laddering, you can open different FDs for a period of 1 to 5 years. These will have different maturity dates. In this way, one of your FDs will mature after every year. Due to which funds will keep accumulating with you. If you want, you can withdraw the money or you can reinvest that money.
For example, if you open an FD of Rs 1 lakh for a tenure of one year at an interest rate of 5%, while the inflation rate during this period is 6%, then the returns you will get will not be able to compensate for the effect of inflation. But if you open different FDs at different times at increasing interest rates of 5%, 7%, and 8% under FD laddering, then you will get a return higher than inflation.
Benefits of FD Laddering
Liquidity will increase: When your FDs mature at regular intervals, you will keep accumulating funds after a period of time. Which can be useful for sudden expenses. Along with this, you can also invest this fund in other places.
Benefit of interest: If the interest rate of FD increases, then you can again invest in higher interest rate. But if the interest rate comes down, then you keep getting higher interest on the investment you made earlier.
Regular Income Source: If you invest in many FDs, you keep getting interest on different FDs. This becomes your regular income source. This is very good for those people who want to get regular income without taking any risk.
It is easy to maintain: After investing the money, you have to monitor it often. But FD laddering is a very easy strategy. Here you do not need to pay much attention. Once you set up the FD, it keeps working automatically. And gives you financial stability.
Also read: Only these many days are left to update your Aadhaar card for free, avail the benefits immediately
keep these things in mind
Interest Rate: It is important to keep an eye on the current interest rates. If you invest under the FD laddering strategy, you are saved from losses when the interest rate goes up or down. But when your HD matures, it is important to look at the current interest rates while investing again.
Take care of taxes: The income you earn by investing in FD is taxable. Depending on the tax slab you fall in, you should pay attention to whether the return on HDD is affecting your total return or not. For this, you can consult a tax advisor so that there is no problem in investing.
Clearance at start: Generally, if you break an FD in a bank before its maturity date, many banks levy a penalty on it. That is why when you invest in an FD, first check the liquidity you have, so that you do not have to break the FD suddenly.
FD laddering is a smart strategy to earn higher returns by investing in FDs. Whether you are a risk-averse investor or you want stable returns, or someone who wants to diversify his portfolio, then FD laddering can prove to be a good option for such people.
Also read: Who will get exemption in traffic challan in Delhi? Know by when will you have to pay