Boost Your Returns: The Power of Laddering Fixed Deposit Investments

Posted on Wednesday, December 4th, 2024 | By IndusInd Bank

Summary – Fixed deposit laddering involves spreading your funds across multiple FDs with different tenures instead of locking them into a single FD. This approach maximises returns, improves liquidity, and reduces interest rate risks. IndusInd Bank offers attractivefixed deposit interest rates along with flexible tenure options, auto-renewal features, and a 100% online application process.

Fixed deposits (FDs) are a favoured investment option due to their safety and guaranteed returns. They offer a fixed interest rate over a specific period, making them an ideal option for risk-averse investors. However, a potential downside of FDs is the risk of locking in money at a low interest rate, especially if rates rise at a later time. This is where FD laddering comes into play.

FD laddering involves splitting your investment into multiple FDs with varying maturity dates. This strategy allows you to benefit from fluctuating interest rates and, ultimately, optimise returns. Read on to learn more about FD laddering and how it works.

What is FD Laddering?

FD laddering is a strategy where you divide your investment into multiple FDs with different maturity dates. Instead of investing a lump sum into a single FD, you spread it across several deposits, each maturing at different intervals. This approach maintains a balance between liquidity and returns.

How Does it Work?

FD laddering works by dividing your total investment into small parts and investing each part in separate FDs with varying tenures. Here’s a simple example to illustrate this:

*The fixed deposit interest rates considered are currently those offered by IndusInd Bank.

Suppose, you wish to invest INR 5 lakh in an FD. Instead of putting the sum into a single FD, you split it into multiple FDs with different tenures. For instance, you can invest INR 1 lakh each in 1-year, 2-year, 3-year, 4-year, and 5-year FDs. Each year, one of these FDs will mature, providing you with liquidity and the opportunity to reinvest at current interest rates. This approach guarantees that a portion of your savings is always accessible, while you still take advantage of potentially higher interest rates on longer-term deposits.

Also Read: Pros & Cons of FD Laddering

How Does FD Laddering Help in Maximising Returns?

The laddering approach offers several benefits that can help you maximise returns on your fixed deposits.

1. Mitigates Reinvestment Risk

Reinvestment risk arises when you have to reinvest the proceeds of a matured FD at an interest rate lower than before. FD laddering mitigates this risk by staggering the maturity dates of your deposits. Since only a portion of your total investment matures at any given time, you can reinvest at current market rates without significantly affecting your overall returns.

2. Improves Liquidity

One of the main advantages of FD laddering is improved liquidity. Typically, breaking an FD before its maturity date results in penalties and reduced returns. With an FD ladder, your investments mature at different times, giving you access to funds more frequently without breaking any deposits prematurely.

3. Consistent Income

With FD laddering, different FDs mature at regular intervals, providing a steady income stream. As each FD matures, you have the flexibility to either reinvest the funds or use them as needed. This is particularly beneficial for retirees or those who require regular income from their investments, as it allows for financial adaptability without being tied to long-term commitments.

Secure Your Financial Future by Booking an FD with IndusInd Bank

Fixed deposits are a reliable and secure investment option for many investors. By incorporating laddering into your strategy, you can enjoy higher returns, better liquidity, and lower risk. IndusInd Bank offers best-in-class fixed deposit interest rates, along with several advantages:

• Flexible tenures
• Auto-renewal facility
• 100% online application process

To enjoy attractive fixed deposit interest rates, open an FD account online with IndusInd Bank today!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.