Few fixed income instruments offer the benefits fixed deposits do. From guaranteed returns to attractive interest payouts and protection against market risks, you can enjoy myriad benefits. In fact, the longer your fixed deposit tenure, the more rewarding are the earnings. But what about the loss of liquidity?

Well, if you plan your fixed deposit investment right, you can have your cake and eat it too. 

Why You Need a Mix of Short-Term and Long-Term Fixed Deposits

Instead of parking your surplus in a single fixed deposit for the long term, why not book multiple FDs online? In technical parlance, this is called laddering. It offers you a simple workaround to meet liquidity needs and achieve financial goals. Here`s how.

Suppose you have a lump sum of Rs. 10 lakhs you want to invest for a tenure of 5 years. To ladder the same, you can break down the amount into five FDs of Rs. 2 lakh each and set the tenure to 1, 2, 3, 4, and 5 years respectively. 

Once the first FD matures after a year, you can renew it for the next five years. You do the same thing for the FD next in line, and so on. Thus, creating a "ladder" of investments. This way, you can:

•   Invest without worrying about interest rate movements 
•   Ensure you get good returns from the long tenure 
•   Have liquid funds at hand every single year

But if you are still concerned about the loss of liquidity, let the following FD features change your mind. 

Non-Cumulative Option
A non-cumulative option offers interest payouts from time to time. So, you always have liquid savings handy.

You get to earn a periodic income from your lump sum without having to break the deposit. However, in the cumulative option, your deposited amount collects interest on interest for the entire tenure, leading to a bigger corpus of earnings. So having a mix of both is a winning strategy.

Credit Accessibility
We often think of breaking our deposit when a cash crunch punches us in the gut. But not only do you lose out on the expected returns, but you also attract a penalty fee. Taking a loan against your long-term FD is a better way to meet the sudden obligations.

The interest rates charged on such loans are usually 1-2% higher than your FD rate. Also, the returns earned on the deposit can make up for the interest outgo.

 

Things to Remember When Investing in a Fixed Deposit
 

•      Go for a fixed deposit scheme offering a high ROI to maximise your total earnings.
•      Consider opening a fixed deposit online. It is simple and can be done in just a few minutes.
•      Take time to understand your bank`s renewal policy if you`re going for the ladder strategy.
•      Understand the tax liability associated with FD gains.

Take the Leap!
If you have a long investment horizon and a low-risk appetite, fixed deposits offer the perfect avenue to make attractive bucks. They also offer ample liquidity and capital protection like no other.

So, if you have been sitting on the fence, here`s your sign to take the leap and book a fixed deposit online.