How to make Fixed Deposits effectively work for you

Every individual desire to increase his wealth over a short and quick duration. Recalling the adage, slow and steady wins the race, same is the case with a Fixed Deposit (FD).  You can see yourself being steady and accumulating wealth over the tenure of your Fixed Deposit. From the plethora of investment avenues opening, one can notice the FD rates to be consistent over the years. Let us have a look at how Fixed Deposit can be a safer and risk-free investment option. 

· Fixed value of redemption amount

You can make a fixed deposit based on your investment goal. A definite amount of redemption value can help you determine exactly how to manage your finances, taking into account the certainty associated with the value of the fixed deposit.

· Cushion in times of need

Fixed deposits being liquid in nature, can prove to be a corpus for other investment option. For harnessing such avenues, you need to time the entry and exit points in the market. Your FD’s can help in making a move to alternate investment options depending on your risk appetite.

· Diffuse your risk

You can diversify the risk on maintaining fixed deposit across different institutions like nationalized banks, private banks, co-operative banks, and non-banking finance companies. Also, it helps you take advantage of the different interest rates offered in these institutions.

· Opting different tenures for each FD

Opting different tenures can help you take advantage of different FD interest rates. Fixed Deposit interest rates are revised depending on the change in reference rate when brought about by the central bank of the country. While making the best use of different time durations, you can take advantage of accumulated corpus to switch your investments.

· Compounding FD’s V/s Other investment Opportunities

By now, you must be convinced about the power of compounding. Taking an example from the book, ‘The Art Of Thinking Clearly’ which cites an example where a piece of paper is folded in two, then in half again, and again and again. How thick will it be after fifty folds? Take an astronomical guess. Well, if we assume that a sheet of copy paper is approximately .004 inches thick, then its thickness after fifty folds is a little over sixty million miles. Linear growth we understand intuitively. However, we have no sense of exponential growth.

Correlating the above example with compounding, we can infer that money in Fixed Deposit earns interest over the previously earned interest. Compounding creates an exponential growth over long durations. The downside being forgoing other investment options while your money grows in Fixed Deposit.

· Consulting a financial advisor

A financial advisor can guide you in increasing wealth from other investment options along with helping risk-averse investors achieve their investment goals using fixed deposits. A wise financial planner knows how to hedge risk from the market with the lesser volatile instruments like FD’s maximizing your gains.

You can make the most of the prevailing FD interest rates on offer. FD’s can be an alternative investment avenue along with primary investment for risk-averse investors or someone with lesser risk appetite.