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from the banks (Fixed Deposit) Annual interest ranging from 7% to 9% is being offered on FD. Due to this, many people are getting FDs of different time frames these days. If you are also thinking of getting FD, then do you know FD Laddering. If not then don’t delay now. Knowing this, not only will you be able to earn more through FD, but you will also be able to arrange money easily when needed. So let’s know what is FD lending and what are its benefits?
What is FD laddering?
FD laddering is a way of investing in multiple FDs. In this method, investors are advised that if they are going to get an FD of five lakh rupees, then do not get it done in one FD. he/she should put this amount in 5 different FDs. That is, he/she should get 5 FDs of Rs 1 lakh each. In other words, investing in a series of FDs of different time frames instead of one long-term FD is called FD laddering.
In this way the investor gets the benefit
For example, let us assume that Ramesh has Rs.3 lakh. Instead of investing it in lump sum for 3 years, he/she invests it in 3 FDs of 1 lakh each. he/she does the first FD for 1 year, the second for 2 years and the third for 3 years. he/she gets the advantage of this that if he/she needs Rs 1 lakh in between, then he/she will not need to break all the FDs. he/she will be able to do his/her work by breaking an FD. This way he/she will have less penalty and less interest loss. Along with this, its liquidity will also remain. By doing the second three FDs, he/she will get the benefit of more interest because banks give different interest for different tenors. In this way he/she will also get the benefit of higher interest. The risk on his/her FD will also be less as it will be invested in three banks. he/she will also get the benefit of increase or decrease in the interest rate from the banks because after one year if the interest increases then he/she will be able to invest it again. In this way he/she will be able to create a complete cycle of investment.
Table of Contents
1. Get rid of minimum returns
Under FD ladder, the investor divides his/her amount into smaller FDs. In this way from first FD to last FD books them one by one after a gap of 3-5 years. With such a long gap between the first and the last, the chances of earning the lowest rate on FDs are slim. The investor gets excellent returns.
2. Freedom from the tension of increasing or decreasing the interest rate
By doing FD lending, the investor does not need to guess the best time to book his/her FD or the interest rate movements. This makes him/her tension free as some FDs can be booked at lower rates while some will be booked at higher rates as well. In this way the possibility of loss to the investor is negligible.
3. Expect to get the best interest rate
The interest rate offered by the banks varies from tenure to tenure. Usually the best returns of Fixed Deposits are available on long tenure FDs, ie. 3-5 years. Since FD lending gives you time-to-time liquidity, you can still book all your FDs for a longer tenure of 5 years. So despite splitting your large FD into multiple smaller FDs, laddering allows you to go for a longer tenure to get the benefit of the bank’s higher interest rate.
4. Liquidity without loss
One of the advantages of FD ladder is that you get regular liquidity. If you have booked an FD for a long period and need money in between, you may have to break the FD often at a loss. In a ladder, the amount is divided into smaller tranches, with each tranche maturing at a different time. This gives you a wide range of liquidity without breaking your FD in the middle of their tenure.
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