There was a time when a LOT of finance creators were dissing grandparents’ favourite investment option (Fixed Deposits). But, FDs are BACK in action, and can now BEAT inflation.
Now considering everywhere else, there seems to be plenty of uncertainty, people are considering getting FDs back in their portfolio because they’re offering up to 8% in returns in some cases!
So, we thought we could chime right in and talk about your parents’ one true love in the name of investments: Fixed Deposits aka FDs!
What if we say we’ve got an actionable tip for you, with a better way to invest in FDs.
FD Laddering
FD laddering is a strategy where you split your money into fixed deposits (FDs) with different maturity dates. Instead of putting all your money into one FD, you spread it out across several, like rungs on a ladder. As each FD matures, you can reinvest or use the money, creating a steady income stream.
For example, creating an FD of 10 lakhs for three years at a 7% interest rate will give you a fixed return. But if you split it into three parts and create an FD with each part for 1, 2, and 3 years respectively, at differing rates of interest, one of these will mature every year. By reinvesting each maturity amount annually, you will make a lot more money.
Still a bit confused? We will break it down for you
If you have Rs 3 lakh to invest, rather than investing it all at once for 3 years, you can divide it into 3 FDs of Rs 1 lakh each. One FD matures each year, providing liquidity annually. This strategy is known as an FD ladder. Similarly, you can create an FD ladder with a 5-year tenure by reinvesting the matured FD annually.
Here are 3 LEGIT reasons to ladder your FDs:
- Smart Risk Management: Think of FD laddering like spreading your bets at a poker table. By splitting your money into different FDs with various maturity dates, you’re not putting all your eggs in one basket. This way, you’re cushioned against sudden interest rate drops and market changes. This way, you have the flexibility to access some of your money without closing the FD before it matures.
- It’s like hitting the sweet spot in a game – FD laddering lets you play the field. By locking in different interest rates over varying periods, you maximise your overall returns. It’s a bit like getting the best deals from multiple stores at the same time!
- Flexibility on Tap: Picture having a stash of cash on hand whenever you need it. With FD laddering, you’ve got a constant flow of funds becoming available as each FD matures. It’s like having a financial tap that you can turn on whenever you want to fund a goal, tackle an unexpected expense, or simply reinvest for more growth.
Exploring smarter ways to invest and save is key to securing financial stability is literally the only way to achieve your financial goals in 2024! Stay informed, stay proactive, and continue to let FinCocktail usher you toward financial empowerment!
