For risk-averse investors, especially senior citizens who want to get assured returns, a fixed deposit is the best option. Investors can receive fixed returns at pre-determined interest rates without having to deal with the market uncertainties. Fixed deposits that have a premature withdrawal option enable the account holder to close the account before the maturity date. In case of financial stress, this is a welcome relief. Among the factors that investors like the FD is that it offers a variety of tenure options, ranging from seven days to ten years. Liquidity, on the other hand, remains a concern. As a result, premature withdrawals can be disruptive to your finances. That being said, as a penalty to the bank, the depositor will be allowed to pay a certain amount. This is normally between 0.5 and 1% of the maximum. Some banks allow you to make a premature withdrawal with no penalty as well. Here, we will discuss how to manage your bank deposits efficiently without making premature withdrawals.
Opt FD Laddering Strategy
A strategy known as "Bank FD laddering" will help you avoid premature withdrawal from your bank FDs and facing a penalty. Bank FD laddering is a strategy that entails handling multiple FDs of varying maturities. It is a more effective method of managing liquidity. What you have to do is break up the lump sum contribution into smaller chunks and diversify them out over different maturities. Rather than investing your entire lump sum amount in a single FD, split your money equally and invest it in a variety of FDs of varying maturities. For example, suppose you want to invest Rs 5 lakh in a bank FD. You can divide the corpus into five equal amounts using the FD laddering method, i.e. five FDs of Rs. 1 lakh each for varying maturities. You can invest Rs 1 lakh in each of the following FDs: 1-year, 2-year, 3-year, 4-year, and 5-year and reinvest the maturity amount upon maturity. Assume you re-invested each FD in a fresh 5-year FD. As the 1-year FD matures, it will be reinvested for another five years until maturing in the sixth year. The 2-year FD matures in the seventh year and so on.
In this case, you've set up an investment cycle in which one of your FDs matures every year, ensuring that you'll have enough capital to satisfy your personal finance. Depending on your needs, you can make your own laddering technique. You can also customise different investment options to meet your needs. Bank FD Laddering is a popular way for retirees to receive a steady income at the time of retirement. Another advantage of laddering is that if your requirement can be met by withdrawing a single FD, you won't have to disrupt your entire investment portfolio in the event of a financial disaster. A laddering approach will help you achieve your financial targets and liquidity needs by investing either in various FDs or stretching your investment through different instruments. You can even pick from a variety of banks to invest in various FDs and benefit from a Rs 5 lakh deposit insurance plan in the event of a bank default.
Have a look on sweep in FDs
Fixed Deposit Sweep-in is a service offered to investors by lenders. Depositors must have a savings account linked to their fixed deposit account in order to use this service. The depositor specifies a specific ceiling. When the savings account balance surpasses this level, the funds are transferred to the specified fixed deposit account. A sweep-in FD offers comparable interest rates to a standard FD while also providing the liquidity advantages of a savings account. Furthermore, there are no penalties for using or withdrawing funds from sweep-in accounts and even no penalties on premature withdrawals. Because FD interest rates are higher than savings account interest rates, the money transferred to the linked fixed deposit account would collect more interest. Furthermore, since the account holder sets the cap, using a sweep-in facility has little impact on the account holder's liquidity.
As a result, they can set it according to their personal finance goals. If a sweep-in deposit is chosen, any amount in the savings account that exceeds a certain threshold limit is automatically transferred into the linked FD account. If you have Rs 2 lakh in your bank account and the threshold amount is Rs 50,000, Rs 1.5 lakh will be automatically transferred into the fixed deposit account. Some banks have a certain threshold cap, whereas others can allow you to schedule your own. A lower threshold cap aids in obtaining a high rate of return on one's investment. However, do not forget to encounter the account's mandatory minimum cap in regard to the threshold limit. To qualify for a sweep-in FD, most banks need a minimum average balance (MAB) in the savings bank account.
Opt for flexi fixed deposit scheme
A fixed deposit is a form of investment favoured by investors who want to save a certain amount of money for the long-run. These fixed deposits are more flexible than traditional FDs and vary in a variety of respects. The tenure and amount of investment in a Flexi fixed deposit are not defined, unlike a standard FD, and can range from 7 days to 10 years. It requires a one-time deposit, and the FD's tenure and maturity are determined on the deposit date. In a Flexi-Fixed account, depositors can change the amount of their monthly deposits and also the number of monthly deposits. Flexi fixed deposits also give you the option of taking out a loan. The Flexi fixed deposit scheme also allows the depositor to withdraw a certain amount from a savings or existing bank account that has been linked to the Flexi fixed deposit scheme. This advantage, on the other hand, varies across banks that provide Flexi fixed deposits. As a result, the advantages of higher returns and greater liquidity are bundled with a single deposit scheme. As a result, you must carefully review the terms and conditions of banks before finalizing your consideration for opting a flexi fixed deposit scheme.