Fixed deposit (FD) laddering is a strategy where you split a lump sum into several FDs with different maturity dates. The Fixed Deposit interest rate across multiple FDs may vary depending on various factors.
An FD ladder is an effective investment strategy that allows you to access a certain part of your funds in need without breaking the fund entirely. Using an FD Interest Calculator can help you estimate the returns for each FD in the ladder, see how compounding works and plan your investments to get the most out of your money.
Let us understand in detail how to maximise returns and liquidity using Fixed Deposits laddering.
Steps to maximise returns using Fixed Deposit laddering
The purpose of investing in an FD laddering is to maximise returns. Here are some steps to maximise the use of Fixed Deposit laddering.
Determine financial goals
Before starting the Fixed Deposit laddering, you need to determine your financial goals. Align the Fixed Deposit maturity period with your financial milestones, such as planning a vacation or buying a car. This will ensure that you have sufficient funds without disrupting other investment options.
Diversify across tenures
The next step toward maximising FD laddering returns is to diversify funds across different tenures, even from different banks. By spreading multiple FDs, you can take advantage of different Fixed Deposit interest rates.
Combine cumulative and non-cumulative FDs
Another way to maximise returns is to incorporate cumulative and non-cumulative in the ladder. With the cumulative FD interest rate, you will get better returns because of compounding. While a non-cumulative FD, you will have an option for periodic returns.
Leverage senior citizen or women-centric schemes
If you or your family members are eligible, include senior citizen or women-centric FD schemes in your ladder. Many banks offer higher Fixed Deposit interest rates on these deposits, further boosting overall returns.
Invest in tax-saving FDs
Individuals can also dedicate one rung of their ladder to a tax-saving FD under Section 80C of the Income Tax Act. It generally comes with a 5-year lock-in period but helps lower taxable income while offering assured returns.
Monitor and rebalance your ladder
Lastly, once you have built your Fixed Deposit ladder, keep an eye on changing interest rates, liquidity needs and new bank offers. Once the FD matures, reinvest it at the best available rate or adjust the tenure based on your financial goals.
How does the FD interest calculator help in laddering?
With FD interest calculators, you will figure out how much you will earn from each deposit before you invest. By entering the deposit amount, tenure and interest rate, you can instantly see the maturity amount and interest earned for each FD.
This will help in aligning the investment amount based on your financial goals, such as buying a car, a child’s education and more. By knowing exactly how much each FD will grow, you can decide how much to invest in each tier of your FD ladder or for different time frames.
The FD calculator also helps you estimate reinvestment opportunities when your FDs mature, allowing you to plan your next deposits strategically.
Conclusion
Fixed Deposit laddering is a crucial way to maximise your lump sum amount. By spreading your investments across multiple FDs, you can balance regular income with long-term growth. However, when planning your FD laddering, consider factors such as maturity tenure, interest rates, tax implications, and more.
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