Fixed deposits are an excellent option for investors with a low-risk appetite due to the assured returns on investments with minimal risk. In addition, FDs are considered safe to park funds in these unprecedented times of excessive market volatility. You may even buy online fixed deposit from banks and other financial institutions.

Even though FDs are considered traditional investments, they are nevertheless excellent products to include in your portfolio. However, before you make the final decision, you should consider a few things.

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How to Choose an Appropriate FD for Yourself?

Here are a few tips for choosing the best fixed deposit to meet your expectations.

• Take the ladder Approach.

Fixed-income returns are vulnerable to fluctuating interest rates that vary in multi-year cycles. You can prevent this scenario by employing the ladder investment technique. In this method, you must divide your investment into many fixed deposits with different tenures. This approach has two significant benefits:

• Provides ample liquidity to the investor
• Levels out the interest rate cycle in the long-term

For example, if you want to deposit Rs.5 lakh, it is recommended to divide the sum into five Rs.1 lakh FDs with one, two, three, four, and five-year terms. Then, if you do not require the money, you can reinvest the maturity proceeds from the one-year deposit in the five-year fixed-rate deposit. This way, you will never be short of cash if you have one FD maturing each year. Furthermore, this approach helps in the long-term balance-out of the interest rate cycle.

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Depending on your liquidity needs, you can use the ladder approach to obtain funds on a yearly, semi-annual, quarterly, or even monthly basis.

• Take a Cumulative Approach for Interest Payment

Like any other long-term investment product, FDs provide excellent returns over time. Although FDs are highly liquid and provide investors with cumulative and non-cumulative options, a longer time frame is preferable. If you don't need the money on a monthly or quarterly basis, cumulative FDs are the way to go. A cumulative fixed deposit will pay you the entire interest plus the principal on maturity. So you get interest on interest. This compounding impact results in a greater effective rate of interest.

• Do Proper Research

The next important step is conducting research and selecting a company/bank that offers the best-fixed deposit rates. Despite the importance of the high-interest rate, it should not be the only factor considered. It is vital to check the safety rating of an FD before purchasing one. These ratings reflect the company's reliability and are assigned by a rating agency like ICRA or CRISIL.

It is also critical that when purchasing an FD, the process for issuing the instruments is uncomplicated. It is more comfortable buying an online fixed deposit because the process is simple, and you do not need to visit a bank physically.

Purchasing an FD is a reliable way to build wealth. Not only will it come to your rescue in an emergency, but the rewards offered by the best-fixed deposits are high and unaffected by any poor market conditions.

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