What is Fixed Deposit Laddering?

Laddering fixed deposits is a strategy that offers both security and growth. This methodical approach staggers maturity dates of multiple FDs. It allows you to capitalise on fluctuating interest rates while maintaining liquidity.


On Bajaj Markets, compare interest rates for different FDs and create a ladder as per your financial objectives. With interest rates of up to 9.40% p.a., you can leverage the power of compounding interest and earn potentially higher returns.

How to Use Laddering for Tax-Saving FD

You can use the fixed deposit laddering technique for any type of investment, including the tax-saver FD. Laddering a tax-saver FD could help you maximise the gains, as you save on taxes as well. Open multiple tax-saver FDs with a 5-year maturity period at different times.

 

For instance, if you open an FD every year, the first FD will mature in the 5th year, the second in the 6th year, and so on. Continue this process, reinvesting each matured FD into a new 5-year tax-saver FD for a consistent ladder.

Illustrative Example of How Fixed Deposit Laddering Works

Fixed deposit laddering is a technique that helps optimise your returns. Divide the investment amount among multiple deposits instead of one. This creates an FD ladder. The purpose is to invest in FDs with different tenors.

 

Different maturity dates ensure that you have some funds available for reinvestment. Here is an example to help you understand how an FD ladder strategy operates:

  • Say you have invested ₹3 Lakhs in fixed deposits

  • Instead of a single FD, you create 3 FDs of ₹1 Lakh each

  • You invest these 3 FDs for a tenor of 1 year, 2 years, and 3 years

  • Reinvest the maturity amount of the 1st FD for another 3 years so that it matures in the 4th year 

 

Here is a tabular representation of how a laddered FD will mature and give you liquidity every year:

FD Number

FD Booking Period

Tenor

FD Maturity Period

FD 1

May 2024

1 year

May 2025

FD 2

May 2024

2 years

May 2026

FD 3

May 2024

3 years

May 2027

FD 4

May 2025 (FD 1 re-invested)

3 years

May 2028

FD 5

May 2026 (FD 2 re-invested)

3 years

May 2029

FD 6

May 2027 (FD 3 re-invested)

3 years

May 2030 

Note: The above table is for illustrative purposes only. These figures and estimates are indicative. 

 

Use a fixed deposit calculator to estimate the returns and adjust the tenors.

Benefits of the Fixed Deposit Laddering Strategy

Here are some other benefits of adopting this investment strategy:

Higher Returns

Higher Returns

With fixed deposit laddering, you could leveraging interest rate hikes for higher returns

Higher Liquidity

Higher Liquidity

It ensures that one FD matures every year, providing liquidity at regular intervals

Reduced Issuer Risk

Reduced Issuer Risk

Spreading your investment across FDs may help reduce the risk of tying your funds to a single issuer

Financial Discipline

Financial Discipline

It encourages long-term financial planning and ensures discipline by discouraging impulsive withdrawals

Factors to Consider Before Opting for FD Laddering

Evaluate whether a fixed deposit laddering strategy is the right fit for your goals. Here are a few things you should keep in mind:

  • Interest Rates

Check the prevailing interest rates before you create an FD ladder. Note that the FD rates are closely related to inflation and the repo rate, as notified by the RBI. For higher returns, time your investments to align with increasing interest rates. 

  • Investment Objectives

Decide whether you are saving for short- or long-term goals. This way, you could find the ideal maturity period. It may help you understand whether you need to ladder the investment at all. 

  • Liquidity Requirements

If the maturity of the FD is not aligned with your needs, the ladder may be futile. This is because you may not have access to funds when required. Assess your needs and estimate the returns to create an effective FD ladder.

  • Tax Applicability

Evaluate your tax liabilities and select FDs that allow you to enjoy tax exemptions. You could include tax-saving FDs in your strategy. They are eligible for deductions of up to ₹1.5 Lakhs per financial year. This provision is specified under Section 80c of the Income Tax Act, 1961.

Frequently Asked Questions

What is the FD ladder system?

It is an investment technique where you open more than one FD with staggering tenors. This strategy helps you leverage hikes in interest rates and improves cash flow.

What are the disadvantages of the fixed deposit laddering strategy?

One drawback of fixed deposit laddering is that there’s no guarantee that interest rates will improve in the near future. Additionally, managing multiple FDs can be challenging.

Can I use a fixed deposit ladder calculator to estimate returns from this approach?

There is no specific tool for laddering. You could use a regular fixed deposit calculator instead. It can be used to estimate returns across varying interest rates and tenors.

Does FD laddering reduce risk?

Yes. It mitigates the risk of keeping the entire investment with one FD issuer.

Is FD laddering beneficial?

Yes. It can be helpful in maintaining a regular flow of funds. This allows you to reinvest the maturity amount at prevailing rates.

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