Although several financial instruments are available in the marketplace, FDs are considered safe bets even today. They are not as high as market-linked instruments returns. Therefore, locking the best FD interest rates when accounts are opened with this is essential.
Many parameters impact FD interest rates, including government policies, global market trends, and inflation. Rather than the nitty gritty, let us talk about how you can save on getting the best FD rates. The interest rates for fixed deposits can vary from one bank to another. Ensure a lot of research before opening the account, and be aware of precisely what each bank will offer. You must examine several FD products and features and pick the top-notch one that caters to your requirements.
For example, if you expect surplus funds in your Savings Account in the coming months, consider opening a Sweep-out Account alongside a regular FD.
In this type of account, you set a specific limit, and as soon as the amount exceeds this limit, the excess is transferred to the FD. Whenever you need funds, you can access them without any restrictions.
Choose the right tenure:
The appropriate tenure for your FD is crucial for locking a high interest rate. Generally, banks offer higher rates for longer tenures. However, before proceeding, consider your financial goals and liquidity needs.
If you believe interest Fixed Deposit rates may rise soon, you might opt for a shorter tenure. Conversely, if you anticipate a rate dip, a longer-term FD can secure a better rate for an extended period.
Consider laddering:
It is common knowledge that FD rates vary if you deposit for longer tenure. Laddering is where you can use this to diversify your funds when coming to different FDs with different maturity periods. You will have access to funds regularly, but at the same time, you can earn higher interest rates from long-dated deposits. Let’s say you are coming to your friend with an investment of ₹1,00,000; you can ladder it by investing ₹25,000 in 1-year FD, ₹25,000 in 2-year FD, ₹25,000 in 3-year FD and ₹25,000 in 5-year FD. You can then reinvest the principal in new FDs as these FDs mature. This will let you take advantage of the higher interest rates while maintaining an annual infill.
Cumulative interest FD A cumulative FD is the type of deposit in which the interest you will get on your investment is also added. Therefore, you will be able to earn interest on the interest. An FD of ₹20,000 will fetch you a return of ₹1,200 as interest; after one year, if the rate is 6% p.a. 20,000, this amount will grow into at the end of 2nd year, after adding the interest for 6% p.a., it shall make another amount of ₹1,272₹ This way the same process will be repeated up-to maturity. Cumulative FD: Even if you cannot secure the best-fixed deposit rate, you can spread it for several days with cumulative FD because of earning interest from interest. However, this FD is only suitable for those who don’t want regular payouts until the time is over.
Conclusion
Locking in the best FD interest rate requires careful planning and an intelligent approach. By comparing rates across banks, selecting the right tenure, considering laddering strategies, and opting for cumulative interest FDs, you can maximise your returns while maintaining financial flexibility. Since Fixed Deposit rates fluctuate based on market conditions, making informed decisions now can help secure better returns.