Ever tried investing for a vacation?

When most of us think of FDs, we automatically think of long-term, investments with consistent returns.

When we think about cash holdings, on the other hand, we think of hard currency and savings accounts, and don’t think about returns on it.

It’s interesting, isn’t it? How we try to maximize the returns on our investments, searching tirelessly for that extra 0.1% interest on our money, only to leave a significant chunk of capital, in the form of cash holdings, earning practically nothing, and even losing value with inflation. But that’s the cost of having immediate access to funds, right?

The “Need” for Instant Funds

Now, take a moment to think about this; when was the last time you needed funds instantly? In the sense that even a few days of delay would cause irreparable harm. It’s more likely than not that you can’t think of a single such instance. That’s the thing - gone are the days when you had to pay all your dues as soon as possible.

The evolution of credit has changed the entire landscape of the financial world. But while the financial world has changed, people’s mindset with regards to money takes a little longer to catch up. Even so, the urban populace is starting to figure things out, and leading the way for the less privileged to follow in their footsteps.

While short-term investments are seldom considered lucrative, people are starting to realize the power of incremental returns. As was reported in a recent press release by the RBI, individuals from more urban backgrounds have started to exploit short-term investments much more than those from more rural backgrounds.

This can likely be attributed to two things:

• Urbanites tend to have a better understanding of financial planning, and quickly catch onto new investing strategies.
• Individuals from lower socio-economic backgrounds tend to prioritize higher returns, and higher tenure FDs usually offer better interest rates.

But how are people using these short-term investment options?

With emergency spends being the exception rather than the norm, most of us have a rough idea of when we will need access to funds. For example, we know when we need to pay rent, have an upcoming celebration, or even a vacation. This knowledge significantly increases our freedom to plan our investments, even in the short term.

If you know that you will need a particular amount to pay for something 3 months down the line, you can simply put that money into a 90-day FD, earning a tidy sum in the process. This also has an added benefit of making sure you don’t waste it on impulse buys ??

You can also have the best of both worlds. Certain banks offer FDs which you can withdraw penalty-free! So, you can invest for the long-term but withdraw it worry-free if the need ever arises. Our partner bank, Utkarsh SF Bank offers this facility, and its FD rates go as high as 9.1% p.a.

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It's important to reassess our mindset and consider alternative options for our cash funds. Instead of letting them sit idle in a savings account, we can explore short-term fixed deposits as a means of earning some interest while still ensuring quick access to funds when needed.

By investing in short-term FDs, we can strike a balance between accessibility and returns, ensuring that our funds are working for us even in the short term.

In today’s edition, we’ve shown you how you can make the most of short-term investments with your cash holdings. At Stable Money, we’re going to keep you informed and ensure that you make the best investment decisions.

Best,

Team Stable Money