Bank Fixed Deposit is an option available for investing your funds with banks. A fixed rate of interest is offered on FDs.A wide range of FDs are available ranging from 7 days to 10 years and offered by all the banks in India.
Bank Fixed deposit is one of the best options risk-averse people and also for those who are happy with limited returns. Bank Fixed deposits are the most popular among Indian investors. FDs offer higher level of safety to the depositor and give him fixed returns on his investments.
Bank FDs are the best fixed return option for depositing lump sum retirement benefits after the retirement for providing monthly income with safety.
Interest rate offered on FDs varied on the basis of their tenures. Interest rates also differ from bank to bank. You can select any tenure and invest your money. It is very important to know that if you want to withdraw from your FD prematurely then banks levy high penalty which reduces actual interest earned by you significantly. Banks Fixed Deposits are meant to remain invested till their maturity and banks levy such penalties to discourage premature withdrawal of FDs.
You should try to calculate in advance as to for how many years you can remain invested in FDs and do not require your invested funds before that period. If you are not very sure about such period, you should split your funds and deposit your funds in FDs having different maturities.
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Laddering of Bank Fixed Deposits is a process of staggering out your investment into multiple tenures of fixed deposits in order to earn comparatively high returns than normal FD. Laddering is an approach by which you can get an annual stream of income for a long period.
In Laddering of Bank Fixed Deposits, you need to create a ladder as follows:
First FD will mature after 1 year. If you do not require the funds at that time, you may reinvest it in 5 year FD to lengthen the ladder further. Second FD will mature after 2 years. If you do not require the funds at that time, you may reinvest it in 5 year FD. Likewise, every year you will receive funds from maturing FDs and you will further invest them for 5 years. In this way, a regular stream of funds will come to you every year with interest and you will not have to face any problem of liquidity.
Added advantage of laddering approach is that you will receive higher returns with more liquidity.
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