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KEY HIGHLIGHTS
- When the rates are expected to go up, you should avoid committing to long-term FDs because you may miss out on the benefit of the rising interest rate.
- The interest rate may not increase immediately, but it may gradually inch up-ward. So short-term FDs can keep your FD investments closer to the prevailing interest rate offered by banks.
- The interest rate on floating rate FDs may not look attractive compared to the current fixed rate FDs; however, if the rate increases, the floating rate FDs can easily be a winner.
Fixed deposits were a major investment tool for senior citizens who often park their retirement fund in such a way where there is minimum risk and decent gains. With interest rates rising again on the back of repo rate hike by the RBI, ultimately banks are also revising upwards FD interest rates, giving indication that good days are coming ahead for FD investors.
So, what are the different techniques you may use to invest for higher returns via bank FDs? Let’s look at some options.
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Short or medium-term FDs
When the interest rate cycle moves up after bottoming out, it has been noted that short- and medium-term FD interest rates respond quicker to rate change than long-term FDs. Investing in such instruments with short or medium-term maturity helps you switch to a higher FD rate. When the rates are expected to go up, you should avoid committing to long-term FDs because you may miss out on the benefit of the rising interest rate.
The interest rate may not increase immediately, but it may gradually inch up-ward. So short-term FDs can keep your FD investments closer to the prevailing interest rate offered by banks, according to Bankbazaar.
Floating rate FDs
A few lenders offer floating rate fixed deposits to their customers. The interest rate on floating rate FDs may not look attractive compared to the current fixed rate FDs; however, if the rate increases, the floating rate FDs can easily be a winner. Floating rate FDs can be beneficial if you don’t want to get into the hassle of continuously switching old short-term fixed deposits to higher rate FDs.
Diversify new FD investments
When interest rates rise, it’s not only banks that hike FD rates, but the rates of company FDs are also increased. Diversifying your investment into banks and company FDs can be a good option for better average rates. By diversifying FD investment into banks and company FDs, you can ensure higher returns on your investment. Company FDs offer a higher interest rate, but you need to do your diligence before investing your money.
FD laddering
Fixed deposit laddering is a good option to ensure a high return on fixed deposits amid the chances of a rise in the interest rate. You can make your own fixed deposit laddering strategy by spreading your lumpsum fund into different FDs with multiple maturities.
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