Fixed deposit laddering is a method in which you divide your investment into multiple fixed deposits (FDs) with different maturities. This way, you avoid locking up all of your money for the same period. When one FD matures, you can withdraw or reinvest it, while other FDs mature at different times.

Laddering lowers the chance of locking your money in low interest rates, boosts liquidity, and allows you to benefit from fluctuating interest rates. It’s an effective technique for finding a balance between security and flexibility in your investing.

What is Fixed Deposit Laddering?

Fixed Deposit Laddering ensures that some portion of your investment matures at regular intervals, giving you access to funds when needed while still earning interest on the remaining amount.

For example, instead of investing all of your ₹ 5,00,000 in a five-year FD, you may divide it across five FDs with maturities of 1, 2, 3, 4, and 5 years. This way, you will always have an FD maturing every year, giving you access to funds while continuing to earn interest on the remaining deposits.

FD laddering is a simple and effective way to maximise returns while maintaining liquidity.

Benefits of Fixed Deposit Laddering

Here are the key benefits of fixed deposit laddering.

1. Reduced Interest Rate Risk
   
   Investing in FDs of varying maturities minimises the risk of locking up your money at a low interest rate. Only a part of your money is impacted, even if interest rates decline.
2. Higher Returns Over Time
   
   Because interest rates are subject to change, laddering enables you to reinvest matured FDs at possibly higher rates. Instead of being locked into a long-term, low-interest FD, you can take advantage of rates if they increase.
3. Consistent Income
   
   FD laddering creates a consistent income stream by having various FDs mature at regular intervals. As each FD matures, you have the option to reinvest the funds or use them as needed.