Even after the introduction of so many financial instruments in the market, FDs are still considered one of the safest options. However, since their returns are slightly lower than those of market-linked instruments, locking in the best rate when opening an FD account becomes crucial. 

FD interest rates are affected by various parameters, such as government policies, market trends, and inflation. Instead of delving into the technicalities, let’s discuss ways to secure the best FD rates.

 Tips to get the best Fixed Deposit rates 

 Compare rates online 

Fixed Deposit rates vary across banks. Before opening an account, it is advisable to conduct thorough research on what different banks offer. You should also review various FD products and their features, choosing the one that best fits your needs.

For example, if you expect to have surplus funds in your Savings Account in the coming months, you may want to consider opening a Sweep-out Account alongside opening 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 

Selecting the appropriate tenure for your FD is crucial for locking in 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 

You might be aware that the Fixed Deposit rates can vary based on your investment tenure. That is where laddering can help. It is a strategy where you spread your funds across different FDs, each with varying maturity periods. This way, you have regular access to funds while still earning higher interest rates from long-term deposits.

For example, if you have ₹1,00,000 to invest, you could create a ladder by placing ₹25,000 in a 1-year FD, ₹25,000 in a 2-year FD, ₹25,000 in a 3-year FD, and ₹25,000 in a 5-year FD. 

You can reinvest the principal in a new long-term FD as the FDs mature. This allows you to take advantage of higher interest rates while ensuring liquidity every year.

 Consider cumulative interest FD 

A cumulative FD is a product where the interest you earn on your investment is added to the principal amount, allowing you to earn interest on interest. 

For example, if you open an FD of ₹20,000 and the return on it is 6%, p.a., your FD will generate a return of ₹1,200 after one year. This interest will be added to ₹20,000, and at the end of the second year, the interest of 6% p.a. will be calculated on ₹21,200, resulting in ₹1,272. This process will continue until maturity.

With a cumulative FD, even if you do not secure the best Fixed Deposit rate, you can compensate for it by earning interest on interest. However, it is important to note that this FD is ideal for those not seeking regular payouts until maturity.

 Conclusion 

Locking in the best FD interest rate requires careful planning and a smart 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.