We all know the importance of intelligent financial planning to secure our future and achieve our dreams. One such investment tool that has recently gained popularity is FD laddering. It is an investment strategy in which your investment gets divided into multiple Fixed Deposits with differing maturity dates.

Laddering is a financial strategy involving FDs of varying tenures instead of one with a large sum. You divide your investment amount into smaller portions and allocate it in multiple FDs with varying maturity dates. Some deposits mature earlier at the current FD rates, and you can use the funds for your financial objectives.

Reasons to opt for it

By reinvesting some of the matured FDs in new FDs, investors can continue earning a regular interest income while ensuring liquidity. The laddering strategy offers a flexible and balanced approach to fixed-income investments, earning you better returns with liquidity. Listed below are some reasons to opt for a laddering strategy:

Higher interest earnings

With FD laddering, you can earn higher interest rates than a Regular Savings Account or a single FD. As each FD matures, you can reinvest it into a new one with a higher interest rate, maximising your earnings.

Flexibility and liquidity

FD laddering provides flexibility and liquidity as you need not lock in all your savings for the same tenure. By creating staggered FDs, you can access your funds more frequently without penalty for premature withdrawal. It keeps your principal and interest on a Fixed Deposit liquid without any financial crunches.

Risk management

FD laddering is an excellent tool for risk management, as it allows you to spread your investment across different terms and avoid putting all your eggs in one basket. This way, you minimise the risk of lowering your returns if the interest rates fluctuate.

Achieving long-term financial goals

You can plan your long-term financial goals, such as retirement or children’s education, by creating multiple FDs with different maturity periods. You ensure a steady flow of income without worrying about market fluctuations. Opening Deposit Accounts on the Banking app has made it easier to attain your goals safely.

Saving tax on interest

You get monthly interest on FD. You will be liable to pay TDS if it exceeds Rs. 40,000 a year. However, with FD laddering, you can divide your investment across multiple smaller FDs, each earning interest less than Rs. 40,000, helping you save taxes.

Factors to consider

Assess your liquidity needs before opting for the FD laddering strategy on Online Banking apps. Carefully plan and ensure some investments mature at a time to meet your liquidity requirements. Consider the interest rate fluctuations, the penalties and tax implications.

Parting thoughts

In today’s uncertain times, making informed investment decisions to secure your financial future is prudent. Using this strategy, you can achieve your financial goals and move closer to your dreams.