Stories
One FD of 6 Lakhs or Six FDs of 1 Lakh Each? Which is More Profitable?
- •Fixed Deposit (FD) is a reliable option for risk-free investment, offering secure money and assured returns. It is not market-linked, ensuring safety but lower interest rates.
- •The common question arises: if you have 6 lakh rupees, is it better to make one FD of 6 lakh or six FDs of 1 lakh each?
- •At a 7% interest rate for 1 year, both options yield the same total interest of 42,000 rupees on 6 lakh rupees.
- •A single FD is easier to manage but requires breaking the entire deposit if even a small amount is needed, potentially incurring premature withdrawal penalties.
- •Multiple FDs offer flexibility for partial withdrawals and allow investors to utilize the 5 lakh rupee deposit insurance limit across different banks more effectively.
Key Questions Answered
No, if the interest rate and tenure are identical, splitting a lump sum like 6 lakh rupees into multiple FDs yields the exact same total interest amount as putting it into a single FD. Whether you create one large FD or several smaller ones, the overall earnings remain comparable under the same conditions.
A single fixed deposit requires managing only one account and maturity date, but it lacks flexibility. If you need even a small portion of money before maturity, you may have to break the entire FD and potentially face a premature withdrawal penalty on the whole amount.
Making multiple FDs allows investors to distribute funds across different institutions, helping them effectively utilize the 5 lakh rupee deposit insurance limit applicable to each bank. This strategy helps minimize concentration risk compared to holding a large lump sum in a single bank.
