7 Best Fixed Deposit strategies to follow

Both novice and experienced investors favor fixed deposits as an investment vehicle. They have been popular among investors with low to moderate risk appetites for decades. Reliability, convenience of opening and liquidating, and guaranteed returns are some of the factors that contribute to their popularity.

The amount of your returns, however, is largely dependent on the investment strategy you use when making fixed deposit investments. You may optimize your fixed deposit returns with the appropriate strategy.

You can use the following fixed deposit techniques to gradually increase your investment:

1. Look Beyond Traditional Bank Fixed Deposits

Compared to bank-offered fixed deposits, corporate fixed deposits (FD) are a relatively new idea in India. Interest rates on corporate FDs are 1-4 percent higher. NBFCs and other financial institutions with the power to offer fixed deposits provide these.

Even though 1-4% might not seem like much at first, there is a noticeable difference when you look at the returns over the course of the maturity period.

Furthermore, a higher interest rate will significantly increase your savings if the investment corpus is large. Corporate fixed deposits are therefore an excellent strategy to combat the high rate of inflation.

2. Assess Fixed Deposit (FD) Issuers Based on Their Credit Ratings

An essential determinant of a fixed deposit’s dependability is its credit rating as determined by CRISIL and ICRA. It is safer to invest in a fixed deposit with a better rating.

The highest-rated deposits, however, provide somewhat lower returns than low-rated and relatively riskier ones, in keeping with the proverb “higher risk yields higher returns.” To optimize profits, safety and dependability must not be neglected. Choose securities with excellent credit ratings and evaluate them according to your risk tolerance and investing objectives.

3. Consider Cumulative Fixed Deposits

The power of compounding is frequently unknown to novice investors. Receiving interest payments at maturity guarantees that your investments and interest will continue to build, even though receiving them on a periodic basis may seem appealing.

This way you grow your earnings and effectively earn more.

4. Avoid Liquidating Your Fd Prematurely, Consider a Loan Instead

Emergencies can happen at any time. Using your FDs for assistance may seem reassuring, but doing it too soon can reduce your profits from the amount you invested. Additionally, you will be penalized for violating the business agreements.

Your FD’s overdraft facility protects you from these situations. Depending on how many days it has been utilized, it will enable you to draw from your FD and just pay interest on the amount spent. Up to 75% of the total amount invested may be taken out as an overdraft by certain companies.

5. Minimize Risk by Working Around the Deposit Insurance

It is prudent to accept that all asset classes include some risk, especially in light of the numerous banks that are having difficulties and experiencing crises. Even though they are said to be the safest, FDs are not completely risk-free. The deposit insurance has been raised to Rs. 5 lakhs in the 2020 budget.

To reduce the danger, try to limit each family member’s fixed deposit to 5 lakhs. To make liquidation easier in the event of an emergency, select survivor mode while opening the FD.

6. Think About the Tenure of the Investment Carefully

Because they would be able to use the money for a longer period of time, many banks and corporations provide higher interest rates for longer tenures. Therefore, choosing lengthier tenures might appear to be a smart move. But there’s also the historical fact that interest rates increase in tandem with inflation.

Therefore, it might also be wise to invest for shorter periods of time and then reinvest when interest rates rise. You must choose the tenure for your fixed deposit based on whether your objectives are short-term or long-term.

7. Follow The Laddering Strategy to Maximize the Returns

By employing the laddering technique for fixed deposits, you can benefit from rising interest rates, obtain consistent liquidity, and generate substantial returns.

An excellent illustration of the foolishness of such a plan is the current state of the economy. Financial institutions are gradually raising the interest rates for foreign direct investments.

Best FD Rates Offered By Banks in 2024