Earning money requires effort and discipline, but deciding where to place it wisely is just as important. Simply saving is no longer enough to create a secure financial future or beat rising inflation.
Building a solid financial cushion depends on choosing the right investment avenues, based on your goals, risk appetite, and time horizon.
While options range from stocks and equity mutual funds to long-term instruments such as the Public Provident Fund (PPF) and government savings schemes, bank fixed deposits (FDs) continue to remain one of the most trusted choices for investors seeking safety and stability.
Why Fixed Deposits Remain Popular
In India, fixed deposits are the most preferred investment choice because they are considered safe. Banks and non-banking financial companies (NBFCs) offer FDs with tenures ranging from as short as 7 days to as long as 10 years.
However, to maximise returns from an FD, it is not enough to simply invest; selecting the right tenure and strategy also matters.
One FD Or Many: A Common Investor Dilemma
A common question investors face is whether to invest the entire amount in a single FD or split it into multiple FDs. For instance, if you have Rs 7 lakh to invest, should you opt for one FD of Rs 7 lakh or seven FDs of Rs 1 lakh each?
Experts point out that if the interest rate is the same, the final maturity amount, including interest, will remain identical in both cases. The real difference lies in convenience, flexibility, and how well the investment suits your needs.
Advantage Of A Single Fixed Deposit
For those who value simplicity, placing the entire Rs 7 lakh in one FD can be the easiest option. You have just one deposit receipt, one maturity date, and only one account to monitor. This approach suits investors who prefer a ‘set it and forget it’ strategy and are confident they will not need the funds for the full tenure, which could be up to 10 years.
The Drawbacks Of One Large FD
The main issue with a single large FD arises when you need money urgently. If you require just Rs 50,000, you cannot withdraw only that portion, you must break the entire Rs 7 lakh FD. Premature withdrawal attracts a penalty on the full amount, reducing overall returns.
There is also a safety concern. Under DICGC rules in India, bank deposits are insured only up to Rs 5 lakh per bank. If you invest Rs 7 lakh in one bank, the remaining Rs 2 lakh is not insured in the unlikely event of a bank failure.
Why Experts Call Multiple FDs ‘Smart Investing’
Splitting your investment into multiple FDs is often described by experts as a smarter approach. By dividing Rs 7 lakh into seven FDs of Rs 1 lakh each, you gain greater control over your money.
If you need Rs 1 lakh, you can break just one FD while the remaining Rs 6 lakh continues to earn interest. Importantly, the penalty applies only to the withdrawn portion, not the entire investment.
If you spread these seven FDs across two different banks, your entire investment can be covered under the DICGC insurance limit. This significantly reduces risk and improves the safety of your savings.
Flexibility When Interest Rates Change
Multiple FDs also offer flexibility in a changing interest rate environment. For example, if you lock in an FD at 7% today and interest rates rise to 8% next year, you can redeem a short-term FD and reinvest it at the higher rate.
With a single long-term FD, this flexibility is lost.
The Downside Of Multiple FDs
The main disadvantage of splitting your investment is the added complexity. You need to track multiple receipts or digital confirmations and remember different maturity dates. For some investors, this can feel inconvenient.
Which Option Should You Choose?
There is no one-size-fits-all formula for FD investing. If you already have adequate emergency funds, want a hassle-free investment, and are certain you will not need the money for many years, a single FD may suit you best.
However, if you prefer flexibility, want protection against changing economic conditions, and wish to stay prepared for unexpected expenses, opting for multiple FDs is a more practical choice.
Ultimately, the best FD strategy depends on your financial goals, risk comfort, and personal circumstances. Choosing the right structure can make a significant difference in how effectively your money works for you.