Fixed Deposit Laddering: What is it and How Does it Work?

Fixed deposit laddering or FD laddering is a unique investment strategy that involves splitting your capital into multiple fixed deposits different maturity.

Fixed Deposits (FDs) are a popular form of investment as they offer a safe way for investors to earn interest income without risking the capital amount. However, you can further optimise your fixed deposit investments using the fixed deposit laddering strategy. In this article, we will take a look at what fixed deposit laddering is and how you can use it to enhance your financial planning.

What is fixed deposit laddering?

Fixed deposit laddering or FD laddering is a unique investment strategy that involves splitting your capital into multiple fixed deposits with different maturity dates. Instead of investing all your capital into a single fixed deposit, you create a sort of ‘ladder’ of multiple fixed deposits. 

How does fixed deposit laddering work?

Let’s understand with the help of an example. For instance, let’s say you have a capital of ₹10 lakh that you wish to invest. Instead of creating a single FD for the entire amount, you can split the capital into five different FDs consisting of ₹2 lakh each. Each of these five FDs would have different maturity periods, like one year, two years, three years, four years and five years.

This will allow you to have partial access to your funds at the end of every year, improving liquidity. When your laddered FDs mature, you still have the choice to reinvest them into an FD or use the funds for any of your requirements.

Benefits of fixed deposit laddering

Some of the key benefits of fixed deposit laddering include:

• With FD laddering, you have regular access to your money as FDs mature periodically. You don't have to break an FD early and lose interest if you need funds.
• If fixed deposit interest rates go up in the future, you can invest the maturing FDs at the new, higher rates. If interest rates fall, you still have some money locked in at the older, higher rates.
• Even if you need to break an FD early, you only affect a small part of your total investment, allowing you to remain invested with the rest of your capital.

If you are considering investing in fixed deposits through the FD laddering method, consider the instant online FDs offered by IndusInd Bank. Some salient features of IndusInd Bank Fixed Deposits include:

• High interest rates: Earn best-in-class interest rates on your deposits
• Instant booking: Book your FD online instantly in three simple steps
• Tenures: Choose from a variety of different tenures to ladder your FDs
• Manage FDs easily: Keep track of and manage your multiple FDs through the easy-to-use IndusMobile app

To conclude

Fixed deposit laddering is a simple and effective way to maintain the liquidity of your funds while also earning interest income by splitting your capital amount into multiple FDs with different tenures. It can help your financial planning by ensuring that you have access to funds at the right time.

You can choose to reinvest the FDs at the time of maturity if are not in immediate need of funds and continue to earn interest. Moreover, reinvesting your interest income will also significantly help grow your invested capital through the power of compounding.

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