Top Tips to Avoid Breaking Your Fixed Deposit

We’ve already explained that a fixed deposit – or FD – is a type of investment where you deposit a fixed sum of money, for a fixed period, and receive a fixed interest rate. Fixed deposits have low risks and high rewards, making them the ideal investment for many. However, in order to maximize your investment, you need to ensure that your FD reaches maturity. 

So… what can you do to avoid breaking your FD?

Plan Ahead

Before investing, carefully consider your financial situation. How much do you earn a month? Do you have any debts and how much money will you need to repay them? Do you have any major expenses coming up, like a wedding or a mortgage down payment? You should only invest an amount that you are confident you will not need to withdraw before the end of the agreed-upon term.

Create a Separate Rainy Day Fund

The main purpose of your FD is to build wealth, not to act as a rainy day fund in case of emergencies. A true emergency fund should be easily accessible. If you don’t have one already, set up a separate savings account for your rainy day fund. If you find yourself needing extra cash, tap into your emergency fund and leave your FD intact. 

Take a Loan

But… what if you haven’t gotten around to creating your emergency fund yet? What if you need money right now? Then you have to break your FD, right? Actually, you don’t. You can use your FD as loan security and take out a loan instead. That way, you’ll ensure that your investment is still earning interest, while also being able to access the cash that you need.

Try Fixed Deposit Laddering

Fixed deposit laddering is a strategy to manage your investments. Instead of investing all your available cash in a single, long-term FD, you can invest smaller amounts in FDs with varied terms. All you need is $1,000 to invest in an FD, so you may even choose to invest in a new FD every couple months.

This strategy allows you to take advantage of the higher interest rates offered on longer term FDs. However, you also have more flexibility because you can access your money every time a short-term deposit matures. At that time, if you have unexpected expenses, you can spend some – or all – of your principal and the interest earned. However, if you can afford to re-invest, then create a new FD and work towards building wealth. 

Ask for Help

Saving money is hard! If you have an FD, or several laddered FDs, you’ve taken one of the most important steps to securing your financial future. Don’t break your FD unless you absolutely have to.

And remember, you can always speak to a financial advisor before making a major decision. If you’re thinking of breaking an FD times may be harder than you anticipated, but you don’t have to navigate your financial future alone.