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Short-Term Or Long-Term FD: Which FD Is Best For You?

  • Highlights

  • Avail multi-deposit facility for laddering your deposits

  • When interest rates fall, choose long-term FDs to lock-in high rates

  • Use auto-renewal facility to keep a tab on interest income limit for TDS

  • Manage multiple FD accounts online using Experia

When it comes to choosing between long-term FDs and short-term FDs, it is important to delve deep into their basic differences. While long-term fixed deposits are built along the same lines as regular fixed deposits, they offer greater liquidity and higher returns.

On the other hand, short-term fixed deposits involve investing a sum of money in an account and letting it grow over a short tenor. These deposits are ideal for raising small amounts of cash for shorter tenor.

Short-term fixed deposits are best utilized for short-term goals like 7 day to 2 years whereas long-term fixed deposits are best used for long-term goals. You can plan their maturity in accordance with your financial goals to ensure liquidity when required.

Knowing more about features and benefits of both these financial instruments can help you determine the best fixed deposits for you.

Benefits and features of Short-term Fixed Deposits

  • Like any other FD, it involves locking a sum of money into an account for a specific period, where it gains interest.

  • This investment option, however, features a shorter lock-in period.

  • The tenor for this deposit can range from 7days to 2 years. 

  • The minimum amount for deposit varies; most institutions have a minimum amount of Rs. 10,000.

  • It is an extremely safe form of investment and does not get influenced by market forces.

  • The interest rates are stable and attractive—usually double the interest rates for savings accounts.

  • It is also important to note that the returns from these deposits can be taxable.

  • It is ideal for short term purposes like acquisition of a new vehicle or purchasing a gift for a family member.

  • There is no liquidity without a penalty, so it is better not to withdraw this amount until the end of the tenor.

If you’re looking for flexible tenor, choose Bajaj Finance Fixed deposits, for high interest rates and payouts of your choice.

Additional Read: Best Investment Plans to boost your income

Benefits and features of long-term deposits

  • This deposit is extremely easy to start. The overall application process is short, transparent, and easy to go follow.

  • These deposits feature a flexible tenor. Various institutions offer you different maturity terms, depending on your needs.

  • Financiers like Bajaj Finance offer an added loan against FD on applying for these deposits.

  • These are the deposits that feature auto renewal. Auto renewal means that the FD is immediately renewed without going through any additional formalities.

  • As is true with other deposits, these deposits let you freely choose the amount that you seek to invest.

  • With such good liquidity, these FDs can be used as a mode of cash anytime the need arises.

  • These FDs can be used for a range of purposes like purchasing a new vehicle or buying your loved one a gift.

  • They offer investors attractive interest rates that guarantee better growth and maturity of the FD over the length of the tenor.

  • Either the tax on the interest earnings of these FD are deducted at source or need to be declared when filing your IT.

  • If you seek to withdraw your FD, you just need to inform the bank or financial company in advance.

You could also calculate your returns before investing with an FD calculator, so you can take the right decision. You can choose any one based on your requirements.

Saving TDS on FD interest income

Interest income from FD is taxable. You can make it non -taxable by ensuring the total interest earned in a financial year is less than Rs 40,000 in a particular branch. Whether the FD is long-term or short-term, you can invest in a single branch with capital amount which will not earn interest more than Rs. 40,000 in a financial year.

Spread out your interest earnings over multiple FDs with different maturity timeline such that in one-year interest income does not cross Rs. 40,000. You can do this easily using the multi-deposit facility from Bajaj Finance FD. Remember to fill in and submit your Form 15G/H

Using short-term and long-term FDs to build a good financial plan

Both types of fixed deposits have their own uses in a successful financial plan. If you wish to earn a corpus say 12 months from now but do not wish to keep your money idle, you can easily invest it in a 12-month FD and earn some interest. This would not be possible with a longer duration FD.

If you foresee the interest rates falling, you should go for a longer duration FD and lock-in the current rates to be earned for at least five years. Even if you think that you can renew a short-term FD, the interest rates might drop in the future which will deprive you of this high interest earning.

A Bajaj Finance FD for 5 years will earn you 49% ROI (Return On Investment) with 8.35% interest. As a senior citizen with a rate of interest of 8.35%, you can look at growing your investment capital by nearly 51%.

Long-term and short-term FDs can be used in combinations to keep liquidity intact by doing short-term FDs at periodic intervals, of say 12 months. You can either use that money or reinvest by choosing the auto-renew option with Bajaj Finance FD.

Secondly, keep few long-term FDs which mature every 3 to 5 years. This will again keep giving you a corpus of money at regular intervals which you can either utilize if the need arises or reinvest as you see fit.

Long term FDs are the best ways to even go for a loan against FDs up to Rs 4 lakhs with Bajaj Finance. Thus, you need not break your FDs or lose out on precious interest earning.

A disciplined approach of investing in a combination of short-term and long-term fixed deposits can be the backbone of a well- thought out financial plan.

Additional Read: 6 Common Mistakes To Avoid, While Investing In FDs

Bajaj Finance is now offering high rate of interest up to 8.35%*

*For senior citizens, on a cumulative scheme tenor of 36-60 months

DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.

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