Ultra-conservative investors still prefer to invest their money in bank fixed deposits (FDs) in India. Instead of the regular or interest payments, some also opt for the cumulative option. The reason for the attraction towards FD is because of the safe and secure nature of investment. It comes with a wide range of tenures. One can choose from 7 days to as long as 10 years. In this investment, the principal amount is invested at a fixed interest rate, then you gain interest on your deposits, which accrues and grows over time.

However, FD liquidity can be an issue, as premature withdrawals are not allowed or come with a penalty. For instance, in case of liquidity, the interest applicable will be only for the period held. Also, re-investing when funds are available again will be at a lesser interest rate if the rates are in the declining trend. Experts suggest to avoid such a situation and to provide liquidity to the funds, you can adopt other approaches while investing in FDs.

Find out how you can avoid such situations and get your funds liquidated:

  • Sweep-in Account:

Locking in funds for a long term in FD is a big problem for investors whose concern is liquidity. They can opt for a sweep-in fixed deposit account that provides both the interest rate of an FD along with liquidity of a savings account. The interest rates of a sweep-in fixed deposit account are similar to a regular FD. Investors also enjoy the liquidity benefits of a savings account.

There is also no penalty charged on utilizing funds or on premature withdrawals in sweep-in accounts. Sweep-in accounts are also known as 2-in-1 account or a money multiplier account.

If you choose a sweep-in deposit account, any amount above a certain threshold limit in the saving account is automatically converted into an FD. For instance, if you have Rs 2 lakh in your savings account and you have set the threshold limit at Rs 50,000, then the excess of Rs 1.5 lakh will automatically be moved out and converted into an FD. However, if you have insufficient funds in your savings account, withdrawals from your FD will be made and funds will be moved back into the savings account, to bridge the deficit. Hence experts suggest maintaining enough balance in the savings account so that one’s FDs don’t get disrupted.

  • Laddering:

By taking the laddering approach while investing in a fixed deposit, you can manage the interest rate risk in a better way and also provide some liquidity to funds. To ‘ladder’ one’s deposits mean, you spread the investment across different tenures. With this investment strategy, you put your investment in one or more financial products with different maturity dates. Experts suggest if the interest rate environment is unfavorable, this helps avoid the risk of re-investing and also does not restrict investors to one product. You can also invest across bonds and FDs at varying maturities.

You can spread your investment across 1, 3, and 5-year fixed deposits instead of locking in funds, say, in a 1-year deposit. You can also renew your FDs for the longest duration and continue the process as and when the various FDs get matured.

  • Avail Loan against FD:

You can also take a loan as all banks allow investors to take a loan against their fixed deposits. The interest charged for a loan on a fixed deposit is generally 1-2 per cent above the interest paid on the deposit. The interest rate, however, depends and varies from bank to bank. Industry experts say taking a loan against fixed deposits has its advantage for the investor instead of opting for a personal loan. The interest rates on loan against fixed deposits are generally lower than personal loans as they are secured by the underlying deposit.

For loan against fixed deposits, the State Bank of India (SBI) charges interest on a daily reducing balance, without any processing fee and pre-payment penalties. The bank offers loans at 1 per cent above the relatively fixed deposit rate. While opting for a loan against fixed deposit some banks give up to 90 per cent of the value of the fixed deposits with the bank. You can take such a loan for any term, up to the deposit’s tenure.