A fixed deposit (FD) is a secure financial investment option that seniors typically prefer in their golden years as they are by nature risk-averse people.

Seniors do not hesitate to invest their money in FDs even if there is a lock-in period or penalty for premature withdrawal. As the Reserve Bank of India (RBI) has paused rate hikes, the deposit rates on offer by banks are almost at their peak, at present. One can check the FD rates with the banks and take benefit of the high rates available.

There is no question about the security and liquidity that fixed deposit offers, but by using the following strategies, one can get the maximum returns and take full benefit out of the FD investments. Here are three ways to maximise the return from FDs.

Choosing The Tenure: When booking an FD, one should look for the highest interest rate on offer. The tenure could be odd for different FDs at different banks, such as two years to less than three years in State Bank of India (SBI), one year to less than 15 months in Axis Bank, etc. In this case, one should choose the maximum period. So, instead of choosing 14 months (less than 15 month) for Axis FD, one might consider 14 months and 29 days. This way, one could choose the highest possible tenure at the prevailing high rate and, thus, maximise the return from that FD.

Also, when the interest rates are high or nearing their peak, one should book the FD for the longer tenure before banks start trimming their rates. This will ensure that you will get the highest rates for the longest term possible.

For instance, SBI currently offers the highest rate of 7 per cent on its regular FD tenure of two years to less than three years. The interest on the FD is compounded quarterly, which brings the annualised yield to 7.19 per cent. For seniors, this is the highest interest tenure of a regular FD with an interest rate of 7.50 per cent and annualised yield of 7.71 per cent. Besides this, SBI offers special FDs ‘Amrit Kalash’ and ‘SBI WeCare’, where the interest for seniors is 7.6 per cent and 7.5 per cent, respectively, but these special FDs are not regular and have a last date.

Opt For Cumulative Interest Option: While booking an FD, there are options like cumulative interest payment (interest on maturity) and monthly or quarterly interest payment. If you do not need regular payment, it is always good to select the ‘interest on maturity’ option to get the compounding benefit. Moreover, if the FD is for a longer term, there will be more compounding, and the yield will be high.

The more the compounding frequency, the higher the return. So, one should choose the cumulative interest option if one has other income sources to run their expenditure.

Use Laddering: Fixed deposit laddering is the strategy, where you choose different tenures with different rates of interest to book multiple FDs instead of booking only one FD at the highest interest rate. It is useful to get the maximum output from your FD investments.

For example, if you have Rs 2 lakh to invest in an FD, instead of selecting only one tenure with the highest interest, choose different tenures at different rates. There are two reasons behind it, first, to avoid the pre-mature penalty if you need money at a time before the long-term FD gets matured, and second, the averaging of interest rates over time.

So, invest a part of Rs 2 lakh in 1-year, 2-year, 3-year, 4-year, and five-year or more FDs. By doing this, there will be liquidity available every year to utilise for any need, and if there is no need for money, it can again be reinvested to maintain the investment and liquidity flow.

There are no standard FD tenures for laddering. One can book FD for six months, 1-year or any other tenure for a short term, depending on the rates and liquidity requirements. One can always change the ladder according to one’s requirement and change in interest rate. In a rising rate regime, one may want to invest in short-term deposits of higher rates, whereas in the falling rate scenario, locking FD for the long term may be a preferred choice.