Fixed deposits (FDs) are a popular investment choice for both new and experienced investors. They offer guaranteed returns, are easy to open and liquidate, and are considered reliable. However, the strategy you use while investing in FDs can make a big difference in your returns. With the right approach, you can maximize your earnings and grow your investment significantly over time.
7 Best Fixed Deposit Strategies to Follow
Here are seven smart fixed deposit strategies to help you get the most out of your FDs:
1. Look Beyond Traditional Bank Fixed Deposits
While most people invest in bank FDs, corporate fixed deposits, that is, FDs offered by NBFCs and other financial corporations, can offer higher interest rates and sometimes have yields 1-4% above those of banks. Although this might seem insignificant at first sight, over the maturity period, it can make a significant difference, especially if your investment amount is big. Corporate FDs are one of the best options to beat inflation and give a boost to savings.
2. Assess Fixed Deposit Issuers Based on Credit Ratings
Always check the credit rating of the FD issuer. Ratings by agencies like CRISIL and ICRA are indicative of the reliability of the FD. Higher-rated FDs are safer, but they may offer slightly lower returns compared to the lower-rated, riskier ones. Balance safety and returns by choosing a high-credit-rated FD that best matches your risk appetite.
3. Consider Cumulative Fixed Deposits
Cumulative FDs reinvest the interest earned, so your savings grow through compounding. You do not get periodic interest payouts; instead, you get all your earnings at maturity. This, in turn, helps you to earn more over time because even your interest earns interest.
4. Avoid Premature Liquidation—Consider a Loan Instead
Well, an emergency can come anytime, but breaking your FD early will cost you in the form of lost interest and a penalty. Instead, take an overdraft or loan against your FD. You can borrow up to 75% of your FD amount and pay interest only on the amount used. That way, you keep your FD intact without having to bear any penalties.
5. Minimize Risk with Deposit Insurance
Overall, the FDs are safe, but not absolutely risk-free. Insurance by a government agency covers ₹5 lakhs per depositor per bank. For minimal risk, keep the amount of FDs with your family member below ₹5 lakhs. Also, while opening a Fixed Deposit, choose “either or survivor” mode for easy liquidation in case of an emergency.
6. Think Carefully About Tenure
Longer tenures offer higher interest rates but your money is then locked-in for a longer period. A rise in interest rates means you will have to miss out on a higher rate of return. Consider shorter tenures, and reinvest at a better rate. Choose the tenure based on your financial goals—short-term for immediate needs, long-term for future goals.
7. Follow the Laddering Strategy
Laddering simply means you will be dividing your investment into smaller FDs, each starting at different maturity dates. As an example, if you have ₹5 lakhs, then you can invest ₹1 lakh each in FDs maturing in 1, 2, 3, 4, and 5 years. When each of the FDs matures, reinvest them for a longer tenure. It gives you regular access to funds by allowing you to take advantage when interest rates go up and also prevents locking up all your money at a low rate.
You can also ladder tax-saving FDs to benefit from tax savings under Section 80C every year.
Bonus Tip: Diversify Across Banks and Corporations
Don’t put all your money in one bank or corporation. Spread your FDs across different institutions to balance risk and returns. Some high-return corporates may be riskier, so diversify to protect your savings.
Final Thoughts
Fixed deposits are secure and reliable investments. However, there are smart strategies to maximize returns on investment. These range from choosing the right issuer to investing in cumulative FDs, and laddering. This facilitates growth in savings and helps achieve financial goals. Always assess your risk appetite and financial needs before making any investment decisions.
Learn More:
- How to Increase Credit Card Limit
- Home Loan Benefits for Women in India
- Best Banks for Gold Loan in India 2025
- Get SBI Yono Personal Loans? Helpful Tips to Get the Loan Fast
- 7-step checklist for fast ICICI Bank personal loan approval
- Airtel Payment Bank Loan: How to Get a ₹5,000 Loan in Just Minutes
