Everyone wants to be financially prepared, but how many are truly ready to handle an actual emergency? According to a recent survey, only 25% of Indians have an emergency fund set aside for rainy days.
An emergency fund is extremely important for your financial well-being. After all, emergencies are unpredictable and can happen at any time in the form of unexpected hospital bills, vehicle repairs, home renovations, etc. An adequate contingency fund saves you from falling into debt over such sudden expenses.
A disciplined approach to growing this fund is through Fixed Deposits (FDs). Here is how you can do that.
Choose a bank with high FD rates
Higher fixed deposit interest rates mean better growth for your savings and a substantial financial buffer for emergencies.
You can choose IndusInd Bank Fixed Deposits to earn an impressive rate on your hard-earned money. Enjoy a paperless process, customisable tenures, flexible booking amounts through video KYC, and other benefits like:
● A 100% digital process to book your FD
● Only provide PAN and Aadhaar details
● Obtain a loan against your FD
● A hassle-free auto-renewal option
● Opt for a five-year FD to reduce your tax liabilities and more
Open an IndusInd Bank Fixed Deposit for your emergency funds today! Give your hard-earned money the growth and liquidity it deserves.
Evaluate and plan
Figure out the amount you need in your emergency fund. Review your monthly expenses, including rent, utilities, groceries, and any other non-negotiable payments, to calculate the total sum required and plan your deposit accordingly.
Most experts suggest that your emergency funds should ideally cover three to six months of living expenses. However, if you have an unstable job, higher obligations, or family members with health issues, it could be wise to aim for more than a year’s worth of expenses.
Reinvest interest earned
If your deposit is about to mature and there have been no emergencies, consider not withdrawing the money. Instead, renew your FDupon maturity to continue earning interest without any breaks.
This strategy uses the power of compounding, where interest earns further interest and leads to higher growth over time. By consistently applying this method, you can gradually increase the size of your emergency fund.
Ladder your FD to balance liquidity and high returns
FD laddering is a great approach to building accessible emergency funds. It involves splitting one large FD into multiple deposits with different maturity dates. Laddering makes your emergency fund both liquid and growth oriented.
For example, if you have ₹2 lakh to invest, instead of putting this large amount in one FD, you could split it into four smaller deposits, maturing every three to six months. This staggered structure means there is always a portion of your funds available without penalty while the rest continues to accumulate interest.
Leverage sweep-in or flexi FDs
For those who desire high FD returns but also 24/7 access to emergency funds, the sweep-in or flexi fixed deposit can be an ideal choice. By linking your FD to your savings account, you enjoy FD-like returns while maintaining liquidity.
If you need emergency funds or your account balance is low, you can withdraw the needed amount from your FD without breaking the entire deposit. This lets you address urgent monetary needs while letting the remaining portion grow.
Things to consider while using fixed deposits for emergency funds
Check the credit rating
AA+ Crisil and ICRA ratings mean the highest degree of safety.
Establish clear targets
Helps align your FD strategy with your emergency needs.
Monitor interest rate trends
Allows you to switch to highbank FD rates and earn better returns.
Use a mobile banking app
Lets you easily monitor different FDs, accrued interest, maturity dates, and other details.
Low penalties
Opt for fixed deposits that can be broken without hefty penalties or charges.
Use funds for real emergencies
Using emergency funds for non-critical purposes could make them unavailable for actual needs.
The bottom line
Using fixed deposits to keep emergency funds is a smart decision to prepare for monetary hardships. These investments offer assured returns with zero risk, high liquidity, and safety. By selecting the highest FD rates, staggering maturity dates, reinvesting after maturity, and monitoring interest rates, you can smartly use FDs to handle financial difficulties.
Remember, the main objective of an emergency fund is accessibility in critical situations. Hence, choosing the right bank with flexible and favourable terms is equally important.
