Should You Open Multiple Fixed Deposit Accounts?

Interest rates are currently high, and experts believe they may start decreasing in the coming financial year, possibly from the first quarter. Fixed deposits (FDs) are directly linked to the repo rate; thus, any change in the repo rate will directly impact the interest rates offered by banks on FDs. Being a simple financial instrument, FDs have long been a favoured choice for senior citizens and risk-averse investors.

However, the debate around whether to open multiple FDs or not remains a topic of discussion. Typically, people prefer opening FDs whenever they have surplus cash in their accounts, resulting in the opening of several random FDs and that too across different banks at times. Ultimately, this can lead to difficulties in managing a large number of deposits.

Note that there is no limit on the minimum or maximum number of FDs. One can open multiple FDs with a single bank or with different banks. There are no restrictions in this regard.

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Is Creating Multiple FDs Beneficial?

Opening multiple FDs can be advantageous, particularly when using different banks. Deposits, including savings, fixed, and recurring accounts, are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for up to Rs 5 lakh per depositor per bank. Therefore, spreading your money across multiple banks ensures optimal insurance coverage.

Additionally, one can avail of higher rates by opening FDs with other banks offering better interest. Moreover, each FD can be linked to a specific financial goal, with appropriate nominees assigned. For example, an FD intended for a child’s education can have the child as a nominee. Similarly, for an FD for emergency purposes, the nominee could be a spouse or a parent. Multiple FDs can also facilitate FD laddering leveraging the best out of prevailing interest rates while minimising risk.

While multiple FDs offer benefits such as higher interest rates, goal-specific nominations, and risk minimization, managing numerous FDs can be cumbersome due to the effort required to maintain records. Consequently, older age people like super seniors prefer consolidating their FDs into a few accounts with a single bank.

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Managing Multiple FDs:

It is important to keep records of financial documents with all the necessary details in one place, a secure location from where these can be retrieved easily.

Banks offer various interest payment options, such as monthly, quarterly, half-yearly, or at maturity.  So, if money is not needed at regular intervals, choose the reinvestment option, where the maturity amount is reinvested automatically at the time of maturity, ensuring no loss of interest. With the auto-renewal feature, an FD is automatically renewed upon maturity without requiring manual intervention, making it easier to manage multiple deposits.

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While a single FD may be easier to manage, it does not offer the benefits of laddering or comprehensive DICGC coverage beyond a certain limit. Thus, opening multiple FDs can help reduce risk and enhance returns if opened wisely.