When a fixed deposit matures, you have got options. So what is the best thing to do with money that is newly available from your fixed deposit?
You have got short window of time – often 10 days or so – to decide what to do and provide instructions to your bank. Doing nothing usually means the fixed deposit will renew: you will start over with another fixed deposit with the same term as before. But that is not always your best option, and it is always a good idea to choose what happens to your money instead of letting the bank do it for you, according to www.thebalance.com.
Time to evaluate: When your fixed deposit comes due, take the opportunity to evaluate your financial goals and your current financial position. How are things going? Do you want to keep cash in a fixed deposit, or would it be better to put the money elsewhere? When you originally bought the fixed deposit, perhaps it made perfect sense, but several years may have passed since then – and a lot can change in that amount of time. If you end up putting the money into another fixed deposit (or simply allow your bank to do it for you), make sure it is a conscious decision – not a default option.
Evaluating your finances also helps you avoid treating your fixed deposit like money you found in an old pair of jeans. It is tempting to splurge with “found” money, but you might really need to save that cash. Remember why you bought the fixed deposit in the first place. Perhaps it was for a down payment, your next car, or a safety net for life’s surprises.
You don’t have to make a decision right away: If you need time to evaluate, move the money into a savings account temporarily. Just don’t forget about it.
Keeping it safe: If you decide that you want to keep that money safe (in other words, you are happy earning a little bit of interest in a government-insured bank account), look at all the options.
Shop around: Your current bank had great fixed deposit rates when you bought your fixed deposit, but other banks might be more competitive now. See how much more you can earn by switching banks, but don’t jump ship unless it is really worth it (calculate how many more naira per year you’ll earn). Changing banks takes time and energy, and your money might not earn any interest while moving between banks; so, sometimes, switching is simply not worth it.
Go liquid? Your money has been locked up for a long time, and now it is free. If you like how that feels, consider using a liquid fixed deposit that allows penalty-free withdrawals (more or less) any time. The trade-off is that you will earn less interest, but that might be a price you are willing to pay if you really need liquidity.
Money market accounts: Fixed deposits pay more than savings accounts, but they don’t always pay much more. If you like the idea of flexibility, look into money market accounts, which often pay almost as much as fixed deposits – but allow you to access your cash. Money market accounts are not as liquid as current accounts, but the money is available in “chunks.”
Form a strategy: Decide how you want to invest your money. Do you want to put it all into one fixed deposit, or would you enjoy having some of your money mature every six months or so?
A fixed deposit ladder can make that happen for you. If you think interest rates are going to rise or fall (or if you think you will need the money at some point), you will want to choose your maturities carefully.
Pay off debt: Another option is to use the money to pay off loans. Look at how much you pay in interest compared to the interest you will earn from another fixed deposit. If you have got toxic loans like high-interest credit card debt, you might be better off eliminating the debt (and cutting up those cars).
Before you take that route, make sure you can do without the money. That cash from your fixed deposit offers security, and you can use it to make high-priority payments (such as your mortgage, auto expenses, and healthcare costs). Throwing it all at your debt means you will have less to fall back on – but you might also get rid of a few monthly payments, which can help you build up your savings again.
It is always good to have some emergency cash on hand. If you want to reduce your debts, that is a great idea. Just decide how much (if any) to keep in savings for any surprises.
Longer term investments: If you have got plenty of cash available and no debt, you might want to use different types of investments for longer-term goals (like retirement).
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