Fixed deposits are the safest investments because they offer guaranteed returns. When you open a fixed deposit offering returns at a stipulated interest rate, you can actually use a fixed deposit interest calculator to arrive at the exact amount receivable at the end of the maturity period. Market fluctuations do not have a role to play here.
Making significant gains with fixed deposits however depend on how well the investments have been planned. You need to understand how they work, how to choose the right lock-in period for your FDs, and understand how to use an online FD interest calculator to assess returns. Knowing where to invest is important too. Look for safety ratings by government-recognized agencies like CRISIL, CARE, or ICRA before trusting a bank or NBFC with your investments.
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What could be the most suitable lock-in period for your fixed deposits? Let us look at some pointers.
FDs: Getting the Timing Right
Multiple Choices are Always Preferred: The highest rates of returns are awarded to the longest terms. Calculations on an FD rate calculator will promise impressive returns on completion of the lock-in period. However, the longest period is not necessarily the best. Choosing multiple FDs with different tenures is preferred for catering to liquidity needs. It is important to remember that premature withdrawals attract penalties that can ultimately jeopardize the gains on principal, significantly.
Keep an Eye for Interest Rates: Determining the right lock-in period will involve some market watching. Keep an eye on the cyclical movements of interest rates. If you are planning FDs for the long term, the impacts of fluctuating rates will be significant. Use an FD interest calculator for precise assessments. Never make impulsive investments when interest rates are low. Wait for a surge and then invest for a longish term so that the amount remains locked in at higher returns, for an extended period.
You can also create a mix of tenures, breaking your principal into multiple fixed deposits to create a laddering effect. Use an FD interest rates calculator to check on the benefits of averaging multiple FD interest returns, long and short term, and decide accordingly.
Choose Penalties over Losses: If there is an impressive growth in FD interest rates and the trend seems to be moving downhill in the time to come, an older FD done at a lower rate may be liquidated and the funds invested in a fresh deposit at the current rate. This would be subject to the condition that you do not require the funds in near future. Paying a penalty for breaking into the lock-in period can still prove beneficial because the funds would end up earning a higher return in the years to come when the market rates for FDs would be lower. Thorough calculations with the help of an FD interest rates calculator will help in informed and confident decision making based on pure numbers.
There are fixed deposit schemes that allow you to withdraw regular interest payments every month, every quarter or every year, or even on a compounded basis. You may consider these too before deciding on the ideal lock-in period, for enhanced flexibility.
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