How to Use FD Laddering Strategy to Maximise Your Returns

Let’s understand the concept of FD laddering with an example. Assume you have a total of ₹1 lakh to invest in Fixed Deposits. Instead of putting it into one FD, divide it into multiple FDs with staggered maturity periods. We have considered a constant 8.25% interest rate for ease of understanding. Ideally, for staggered periods, you get both – lower and higher rates. For example, Ujjivan SFB’s Digital FD offers 8.25% p.a. for a 12-month FD and 8% for an FD ranging from 12 months 1 day to 560 months.

Anyway, here’s how you could set up your laddering strategy.

First FD: Invest ₹25,000 in a 1-year FD at 8.25% p.a. Upon calculation, the maturity amount would be ₹27062.50. Use a Fixed Deposit ROI Calculator to check your returns quickly.

Second FD: Invest ₹25,000 in a 2-year FD at 8%. This FD matures after 2 years, providing a higher interest than the 1-year FD. In this case, the maturity amount would come up to ₹29,295.16.

Third FD: Invest ₹25,000 in a 3 year FD at 8.25%. The maturity amount would be ₹31,712.27.

Fourth FD: You have another ₹25,000 to invest. Invest it in a 4-year FD at 8.25%. The maturity amount would be ₹34,322.83.

The combined returns of your investment would be ₹1,23,392.76. Now if you had invested in a single FD for 1 year, you would have gotten returns of ₹1,08,250.

Now, you may ask why not invest in a 5 year FD at 8.25% p.a. Well, the benefit of laddering is you get to re-invest every time your FD matures. For example, once your 1st FD matures, you can re-invest it for 2 years. Once your 2nd FD matures, you can reinvest it for 3 years and so on, so forth. The overall returns would be quite higher compared to one-time investment.

Also, since the maturity period is staggered, you get to enjoy higher liquidity.

To set up an effective FD laddering strategy, follow these steps:

Assess Financial Goals and Investment Horizons: Evaluate your financial objectives and determine your investment horizon. Consider factors such as short-term liquidity needs, future expenses, and your risk tolerance level.

Segment Your Investment: Divide your total investment amount into different segments, each representing an FD with varying maturity periods. This segmentation creates a ladder-like structure, allowing you to spread your funds effectively.

Select Maturity Periods: Choose suitable maturity periods for each deposit based on your financial goals. For instance, opt for one deposit maturing in 6 months, another in a year, and so on, to align with your specific requirements. Use online FD calculators to compare options and select the most suitable ones.

Maintain Consistency: Regularly review the FD maturity dates and reinvest the principal amount along with the interest earned in new FDs with longer maturity periods. This approach helps you continuously extend the FD laddering duration and maximise your FD returns over time.

The FD laddering strategy offers a practical way to maximise FD returns while maintaining liquidity. By diversifying your investments across multiple FDs with different maturity periods, you can optimise overall returns by taking advantage of changing interest rates.

Remember to regularly monitor interest rate trends, reinvest maturities, and assess your liquidity needs to make the most of this strategy. To explore further and apply this strategy in practice, book an FD with Ujjivan SFB. Take control of your finances and make your savings work harder for you with FD laddering.

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