FD Investment Tips: Is one fixed deposit better or multiple FDs? If you are going to invest Rs 5 lakh, then first know what financial experts say. What are its advantages and disadvantages?
Single vs Multiple FD: As important as it is to earn money, it is equally important to invest it in the right place. Just keeping money in a savings account can neither beat inflation nor make the future completely secure. To have a strong financial backup, it is important that the investment is according to your goal, risk appetite and time period. There are many options available like stock market, mutual funds, PPF and government schemes, but despite this, bank fixed deposit (FD) is still counted among the most reliable investment options in the country. In such a situation, the question arises that if you have Rs 5 lakh, then open one FD or keep this money in multiple FD accounts? Know what financial experts say…
Why is FD still the first choice of investors?
FD is considered safe in India because the returns in it are fixed, not affected by market fluctuations, banks and NBFCs offer FD for the tenure ranging from 7 days to 10 years. However, just putting money in FD is not enough. It is equally important to choose the right tenure and the right strategy, so that you can get better returns.
One FD or multiple FDs? what is better
Suppose you have Rs 5 lakh. Now the question is whether one FD of Rs 5 lakh should be made or would it make more sense to make 5 separate FDs of Rs 1 lakh each? Financial experts say, if the interest rate and tenure are the same, then the maturity amount will be almost equal in both the cases. The difference lies in flexibility, convenience of withdrawing money at the time of need and security.
Advantages and disadvantages of an FD
If you don’t want a lot of frills, an FD may be right for you. It has not just one but many benefits. This results in just one receipt and one maturity date. Management is easy. Investing money and forgetting it is an investment. This option is better for those investors who are confident that they will not need the money for many years. The problem arises when you suddenly need some money. Suppose you want Rs 1 lakh, then you will have to break the entire FD of Rs 5 lakh. This leads to penalty on the entire amount for premature withdrawal, reducing returns.
Why is more than one FD called a smart investment?
According to financial experts, it is a wiser step to divide Rs 5 lakh in 5 different FDs of Rs 1 lakh each. With this, only one FD can be broken if needed, the rest of the money continues to earn interest without stopping, the penalty will be imposed only on that FD which has been broken. A big advantage of many FDs is that today you have made an FD at 7% and next year the interest rate becomes 8%, then you can break a small FD and make a new FD at a higher interest. This facility is not available in a long term FD.
Disadvantages of more than one FD
There are not only advantages but also disadvantages of having more than one FD. It involves handling multiple receipts, remembering different maturity dates, and some investors may find this a hassle. However, nowadays due to net banking and mobile apps, this problem has reduced to a great extent.
Keep one FD or multiple FDs?
According to financial experts, the answer depends on your needs. An FD should be chosen when you already have an emergency fund, you will not need the money quickly and you want easy and hassle-free investments. Choose multiple FDs when you want flexibility, want to be prepared for unexpected expenses and want to take advantage of changes in interest rates.
Disclaimer: This article has been written for general information purposes only. The information given here is not investment advice of any kind. Before making a fixed deposit or any investment, understand your financial need, risk appetite and the terms and conditions of the concerned bank. For better decisions, definitely consult a certified financial advisor.
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