When it comes to fixed deposits in India people often talk about two strategies: laddering and bulleting. Both strategies use fixed deposits. They are very different when it comes to managing your money dealing with changes in interest rates and being able to reinvest your money.
Understanding the difference between these two strategies can help you make a plan that works for you and your money.
What Is FD Laddering?
FD laddering is when you split your money into fixed deposits that mature at different times. For example you could put ₹5 lakh into five fixed deposits of ₹1 lakh each with each one maturing in one, two three, four and five years. When each fixed deposit matures you can put the money into a long-term fixed deposit.
This way you have a stream of money coming in every year and you do not have to take your money out of a fixed deposit before it matures. Over time all of your fixed deposits become term which means you can earn a higher interest rate.
What Is FD Bulleting?
FD bulleting is when you put all of your money into one fixed deposit for a time. You do this to earn the interest rate possible and to make your money grow as much as it can.
This strategy is simpler because you only have to keep track of one fixed deposit. It works well when interest rates are not changing much or are going down because you can lock in an interest rate for a long time.
How Do They Compare?
Here is how FD laddering and FD bulleting are different:
* FD Laddering gives you money every year. Fd Bulleting does not give you any money until the fixed deposit matures.
* FD Laddering helps you deal with changes in interest rates. Fd Bulleting does not.
* FD Laddering is better when interest rates are going up because you can put your money into a fixed deposit with a higher interest rate. FD Bulleting is better when interest rates are going down because you can lock in an interest rate.
* FD Laddering is a bit more complicated to manage because you have to keep track of fixed deposits. FD Bulleting is simpler because you only have to keep track of one fixed deposit.
* FD Laddering is better for people who need to use some of their money every then. FD Bulleting is better for people who do not need to use their money for a time.
When Does Each Strategy Work Well?
FD Laddering is a choice when:
You think you will need to use some of your money periodically.
You are not sure what will happen to interest rates.
You want to avoid putting all of your money into a fixed deposit with a lower interest rate.
FD Bulleting is a choice when:
You have a lot of money and do not need to use it for a while.
You think interest rates will stay the same or go down.
You want to make your money grow much as possible and do not mind locking it in for a long time.
Can You Use Both Strategies Together?
Yes you can use both strategies together. This can be a good way to balance your money. You can put some of your money into a term fixed deposit to earn a high interest rate and put the rest into many fixed deposits that mature at different times.
This way you can earn an interest rate and still have some money available every year.
FD Laddering and FD Bulleting are. Good strategies, but they work for different people. FD Laddering is good for people who need to use some of their money every then and want to be prepared for changes in interest rates. FD Bulleting is good for people who do not need to use their money for a time and want to make it grow as much, as possible. For people using both strategies together is a good way to balance their money and achieve their goals.
