Saving for emergency fund of ₹10-15 lakh? Here’s how FD laddering can help and whether you should consider it

An emergency fund is meant to stay accessible when an unexpected expense comes up, such as medical treatment or house renovation, but keeping a large sum idle in a savings account may not be the only option.

For someone looking to set aside ₹10-15 lakh, the challenge is to balance access to the money with the need to earn some return on it.

This is where FD laddering strategy can be useful. It involves splitting a lump sum across multiple fixed deposits with different maturity periods, instead of putting the entire amount in a single long-term deposit.

By following this strategy, investors can make the withdrawal process becomes more flexible when funds are needed. With the entire amount locked into one tenure, taking out money before maturity could affect liquidity and may also involve premature withdrawal charges or a lower interest payout.

Repo rate hike soon?

The Reserve Bank of India (RBI) kept the repo rate unchanged at 5.25% in its August 2026 monetary policy committee (MPC) meeting. However, SBI Research said in a recent report that it expects 25-basis-point hikes in both October and December, citing rising crude prices and inflationary pressures.

The relationship between repo rates and fixed deposit (FD) rates is closely linked. When the repo rate rises, financial institutions often increase FD rates. If the repo rate rises over the next three months as anticipated, investors will have an opportunity to lock in higher interest rates on their deposits

How FD laddering works

Individuals can structure a mix of 1-year, 2-year, and 3-year FDs instead of locking the entire amount into a single tenure.

For example, an investor with ₹10 lakh can divide the amount across multiple fixed deposits:

• ₹3 lakh in a 1-year FD
• ₹3 lakh in a 2-year FD
• ₹4 lakh in a 3-year FD

For a ₹15 lakh emergency fund, the same approach can be followed by splitting the corpus across different FD tenures:

• ₹5 lakh in a 1-year FD
• ₹5 lakh in a 2-year FD
• ₹5 lakh in a 3-year FD

This way, the entire emergency corpus is not locked into a single tenure, while a portion becomes available for withdrawal at regular intervals. The same strategy can be followed with any lump sum amount, depending on your financial requirements and near-term interest rate change expectations.

An investor also has the option to invest their funds into FDs with shorter maturity periods, such as 3-6 months. This can be considered if you need the money in the near future.

What is the penalty for premature withdrawal of FD?

Banks in India typically charge a premature withdrawal penalty of around 0.5% to 1% on the applicable interest rate when an FD is broken before maturity, according to a report by the ICICI Bank.

The exact charge varies across banks and deposit products and it is done to compensate for the loss a lender incurs due to the early withdrawal.

Therefore, it is crucial to read the terms and conditions of your FD to understand the specific penalties and charges that apply. However, even though you could lose some interest as a penalty, you will still receive your initial money back.