Maximise returns by fixed deposits laddering during the current repo rate regime

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) regulates the repo rate to manage inflation and lending rates across the country. From May 2020 to May 2022, the repo rate remained unchanged given the uncertain economic conditions globally. However, since May 2022 the repo rate has been revised and hiked in every bi-monthly meeting. Seeing such a pattern it was speculated that there would be a rise even now, but recently the MPC has proposed a repo rate pause at the current 6.5%. 

A repo rate hike directly affects the bank’s lending rate, which encourages more returns on instruments like the fixed deposit. The repo rate hikes since 2022 have been a boon to FD investors as they got the advantage of high FD rates. Since the repo rate is directly proportional to the fixed deposit rates, a hike in the rate translates into a hike in FD rates. However, with this on hold investors must strategically invest in their fixed deposit to make the most and maximise returns after the repo rate pause. 

What is FD laddering? 

FD laddering is a smart way of strategising and planning fixed deposit investments in a way that yields maximum returns while also maintaining enough liquidity. It is a way of breaking one significant investment into smaller portions that are invested into separate FD.

A simple way to understand this is with an example. Suppose an investor wants to book an FD of Rs. 3 lakh for 3 years. Now instead of going ahead and booking a 3-year FD with a deposit amount of Rs. 3 lakh he can instead break those into separate investments. These can be Rs. 1 lakh each, with an investment period of one year, two years and three years in separate FDs. When the first-year FD matures he can reinvest it into another FD, when the 2-year tenure FD matures he can reinvest those proceedings in another FD and so on. This enables the investor to make the most of the interest rate changes as well.

Bajaj Finance offers FD facilities where investors can ladder their investments. One can easily estimate the returns by using an online FD return calculator. With interest rates as high as 8.20% p.a. investors can grow their wealth steadily with this instrument. 

What are the advantages of FD laddering?

1. Can take advantage of interest rate hikes

FD is a fixed income instrument meaning the interest rate is locked in once the investment is booked up to the matures. In this case, booking an FD with lower rates can result in a lesser yield. However, if one ladder their FD strategically one can avoid the lowest interest rate and benefit from various interest rate changes, which average the FD rates and result in an overall higher FD effective rate. In this current scenario of a repo rate pause, investors must break their FDs into smaller chunks and ladder them to get maximum returns. This is the right time to invest in a Bajaj Finance FD and make the most of the rate pause. 

Here is a tabular representation presenting the ongoing FD rates and the returns one can make on Rs. 5 lakh during various tenures with Bajaj Finance FD.

As one can see, longer tenures yield higher returns. Hence, you can ladder your investments for different tenures and earn a higher maturity amount.

1. Enjoy more liquidity 

Liquidate FD can come with some penalties, or an interest rate hit, so booking an FD means committing your funds till the end of the tenure. However, when one ladder them, it gives them enough liquidity to fund expenses and even take care of cash fuelled emergencies without taking a hit on returns or growth.

Laddering FDs can hedge against lower FD interest rates 2023 and has the dual advantage of liquidity. This current situation is an ideal time to invest in a Bajaj Finance FD via laddering to maximise returns. One can complete this in a completely hassle-free online process, which takes under 10 minutes. Bajaj Finance has been accredited with the highest ratings of AAA/STABLE and [ICRA]AAA(Stable), indicating the highest safety of one’s money. Instead of waiting around for an interest rate hike, invest now in an FD and ladder investments to make the most of the rate regime.