Fixed Deposits (FDs) are an attractive investment option for many investors because they offer guaranteed returns, ease of opening and liquidating, and reliability. However, the returns on fixed deposits depend on the investment strategy deployed. With the right approach, investors can maximise their returns on FD deposits. This article will highlight some fixed deposit strategies you can follow to grow your investments significantly.
Look beyond traditional bank fixed deposits.
Most investors opt for traditional bank fixed deposits, but there is another option: corporate fixed deposits. Corporate FDs offered by non-banking financial corporations (NBFCs) and other financial institutions usually offer higher interest rates than traditional bank FD deposits. Although the difference in interest rates may seem insignificant at first, over the long term, there is a significant difference in returns. Moreover, for investors with large investment corpus, the higher interest rates can substantially boost their savings. Thus, corporate fixed deposits are a great way to beat high inflation rates.
Assess fixed deposit issuers based on their credit ratings.
CRISIL and ICRA issue ratings for fixed deposit issuers. The higher the rating, the safer it is to invest in that fixed deposit. It is important to note that the highest-rated warranties offer slightly lower returns than the low-rated and comparatively risky ones. However, investors must pay attention to safety and reliability to maximise returns. Therefore, they should opt for instruments with high credit ratings and assess them based on their investment goals and risk appetite.
Consider cumulative fixed deposits.
New investors often need to be made aware of the power of compounding. Getting periodic interest payouts may seem attractive but getting them at maturity ensures that savings and interest continue to compound. This way, investors can grow their earnings and effectively earn more. Hence, opting for cumulative FDs instead of non-cumulative ones is better.
Avoid liquidating your FD prematurely; consider a loan instead.
Emergencies can arise anytime. While it may seem comforting to resort to your FD deposit for help, fixed deposit withdrawal before maturity will add to earnings from the sum invested. Investors will also have to pay the penalty for breaking the agreement. An overdraft facility on an FD cushions investors against such emergencies. It will allow you to borrow from your FD deposit and pay interest only on the sum used based on the number of days it has been used. Some corporations enable investors to take up to 75% of the sum invested as overdrafts.
Minimise risk by working around deposit insurance.
All asset classes have trouble, and FDs are not 100% risk-free. To minimise risk, investors should restrict the fixed deposit amount per family member to 5 lakhs. In addition, they should choose either survivor mode while opening the FD, so it is easier to liquidate in an emergency.
Think about the tenure of the investment carefully.
Many NBFCs and banks offer more interest rates for a longer tenure because they can use the money for longer. Thus, opting for longer terms is a wise strategy. However, investors should also consider that historically, interest rates rise if inflation rises. Therefore, investing for shorter tenures and reinvesting when interest rates increase is also good. Depending on whether their goals are short-term or long-term, investors must decide on their fixed deposit.
Follow the laddering strategy to maximise returns.
Laddering fixed deposits is a strategy that involves investing money into smaller chunks for different periods, such as 1, 2, 3, 4, and 5 years. This allows investors to earn higher returns, take advantage of increasing interest rates, and access regular liquidity. By reinvesting the money from the first deposit for five years, investors can benefit from higher interest rates if they increase. At the end of each year, investors can withdraw the money without penalty or reinvest for another five-year term, creating liquidity and continued investment. This laddering strategy is a popular and low-risk investment option for individuals looking to maximise returns while minimising risks.
Conclusion
FD deposits offer a great way to earn safe and assured returns. However, the right investment strategy is crucial to maximising your returns. By following the above strategies, you can easily make the most of your investment in fixed deposits and achieve your financial goals.
Santosh Kumar is a Professional SEO and Blogger, With the help of this blog he is trying to share top 10 lists, facts, entertainment news from India and all around the world.