Multiple FDs!

It makes sense to have multiple FDs instead of one large FD. So, if you have Rs 25 Lakh then it would be better to have five of Rs 5 Lakh each. The advantages of having multiple FDs are as follows: Diversification: It lets you invest across different issuers. So, if one issuer goes down then impact is limited. It helps you to take advantage of higher interest rates offered by varied issuers. Investing your money across tenures — one, two, three and five years, depending on your cashflow requirements helps you spread the maturities over a period. This may save you from the risk of reinvesting all your money at a low rate. Even if one of the FDs matures in a low-rate regime and you have to roll it over at a low rate, the other FDs keep earning a higher rate of interest. Liquidity: Breaking a large FD for urgent liquidity needs can amount to premature withdrawal penalty on the entire amount. Instead, if you have five FDs of Rs. 5 lakh each then suppose your immediate need is Rs 2 Lakh, you only have to break one FD. The remaining Rs 3 Lakh can be reinvested at the prevailing interest rate.