What Is FD Laddering & Why Should You Opt For It?

Posted on Wednesday, May 31st, 2023 | By IndusInd Bank

FD laddering is a smart investment strategy that involves having smaller, staggered fixed deposits to earn higher returns and manage risk. It is an excellent option for individuals seeking a stable and secure investment approach. Apply for an FD account at IndusInd Bank to enjoy competitive interest rates and other benefits.

We all know the importance of intelligent financial planning to secure our future and achieve our dreams. One such investment tool that has recently gained popularity is FD Laddering. As the name suggests, FD Laddering is an investment strategy in which your investment is divided into multiple fixed deposits with differing maturity dates. In simpler terms, it’s like building a tower of CDs, with each deposit maturing at different times.

Let’s delve deeper into what FD Laddering entails and the various benefits that make it an ideal investment option for those looking to build some financial muscle.

Understanding FD Laddering

FD Laddering is a financial strategy that involves investing in fixed deposits (FDs) of varying tenures instead of a single FD with a large sum. In this strategy, investors divide their investment amounts into smaller portions and invest them in multiple FDs with different maturity dates. This approach ensures that some deposits mature earlier and the investor can use the funds for their financial goals. By reinvesting some of the matured FDs in new FDs, investors can continue earning a regular interest income while ensuring liquidity. Fixed deposit laddering offers a more flexible and balanced approach to fixed-income investments that can help investors earn better returns while having access to liquidity.

Why Should You Opt For Fixed Deposit Laddering?

1. Higher Interest Earnings: With FD laddering, you can earn higher interest rates than a regular savings account or a single FD. As each FD matures, you can reinvest it into a new FD with a higher interest rate, maximising your earnings.
2. Flexibility and Liquidity: FD laddering provides flexibility and liquidity as you don’t need to lock in all your savings for the same tenure. By creating staggered FDs, you can access your funds more frequently without penalty for premature withdrawal.
3. Risk Management: FD laddering is an excellent tool for risk management, as it allows you to spread your investment across different terms and avoid putting all your eggs in one basket. This way, you minimise the risk of lowering your returns if interest rates fluctuate.
4. Achieving Long-Term Financial Goals: With FD laddering, you can plan for your long-term financial goals, such as retirement or children’s education, by creating multiple FDs with different maturity periods. By doing so, you can ensure a steady flow of income without worrying about market fluctuations.
5. Saving Tax on Interest: If the interest income earned on your fixed deposit exceeds INR 40,000 in a year, you will be liable to pay TDS. However, with FD laddering, your investment can be divided across multiple smaller FDs – each earning interest amount lower than INR 40, 000 – helping you save taxes.

Factors to Consider Before Opting for FD Laddering

• Liquidity Needs: Before opting for FD laddering, you must assess your liquidity needs. You should carefully plan and ensure that some of your FDs mature at a time that your liquidity requirements are met.
• Interest Rate Fluctuations: Interest rates are dynamic and can change over time. It is essential to analyse interest rate trends and opt for FD laddering when the interest rates are favourable.
• Early Withdrawal Penalties: Consider the penalty charges while laddering FDs and avoid withdrawing them before maturity.
• Tax Implications: The interest earned on fixed deposits is taxable, and therefore, one should consider the tax implications before opting for FD laddering.

Conclusion

In today’s uncertain times, making informed investment decisions to secure your financial future is more critical than ever before. You can achieve your financial goals and move closer to your dreams by opting for fixed deposit laddering.

So, what are you waiting for? Book your instant online fixed deposit with IndusInd Bank in three simple steps. Enjoy attractive interest rates and flexible tenures, in addition to multiple options for interest payments. Open your FD and begin building a safer, more prosperous financial future today!

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own 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 taking any financial decisions based on the contents and information.