LADDER YOUR FDs TO CREATE A CUSHION AGAINST RATE CHANGES
Outlook Money|August 2023
The Reserve Bank of India (RBI) paused policy rates in the last two monetary policy announcements in April and June 2023, but it’s not clear if it is the end of the interest rate hike cycle.
LADDER YOUR FDs TO CREATE A CUSHION AGAINST RATE CHANGES

The narrative may have shifted slightly with the brouhaha about rising tomato prices and surging inflation levels in June.

While the US Federal Reserve is expected to raise rates yet again, RBI, too, had issued a caution in its June policy statement. “The pace of monetary tightening has slowed in recent months, but uncertainty remains on its future trajectory as inflation continues to rule above targets across the world,” it said.

A report released by the State Bank of India on July 12, 2023, said: “Though retail inflation remains within the tolerance range of the RBI for the fourth consecutive month (and should remain so for the rest of the fiscal), continued vigil on the evolving inflation outlook is warranted, given the erratic progress of the monsoon and its impact on the Kharif sowing and, subsequently, on pulse inflation.”

In this scenario, those waiting in the wings to lock their money in fixed deposits (FDs) have a tough decision to make—whether to invest into the current rates, which have gone up to nearly 8 per cent for private sector banks in 2023, or to wait a bit longer. The dilemma is about losing out on the opportunity if the interest rates increase further or failing to benefit from the current rates if they dip.

One of the strategies that can come to investors’ rescue in such times is to opt for FD laddering, which helps average out the interest rates over a period of time. Since predictions are hard to make, the FD ladder offers an adequate cushion against the interest rate fluctuations and possibly offer better yield for your invested money.

Cushion Against Rate Changes

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Denne historien er fra August 2023-utgaven av Outlook Money.

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