When it comes to choosing between long-term FDs and short-term FDs, it is important to understand the basic difference between them. 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 a shorter tenor.
Short-term fixed deposits are best for short-term goals like 7 days to 2 years whereas long-term fixed deposits are best used for long-term goals. You can plan their maturity as per your financial goals to ensure liquidity when required.
Knowing more about features and benefits of both fixed deposits.
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
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 quick and simple.
- 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 deposits usually have an auto-renewal feature. This means that the FD is immediately renewed without going through any additional formalities.
- These deposits let you freely choose the amount that you wish to invest.
- 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 over the length of the tenor.
- If you seek to withdraw your FD, you just need to inform the bank or financial company in advance.
Saving TDS on FD interest income
The interest earned on your 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 branch. Whether the FD is long-term or short-term, you can invest in a single branch with a capital amount that will not earn an interest of more than Rs. 40,000 in a financial year.
Spread out your interest earnings over multiple FDs with different maturity dates such that the interest income does not cross Rs. 40,000 in a year. You can do this easily using the multi-deposit facility from Bajaj Finance FD. Remember to fill 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 benefits 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 interest 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 a 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 a few long-term FDs that 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 an excellent financial solution as you can also utilise these to get a loan against FD of up to Rs. 4 lakh from Bajaj Finance. This way, you don’t need to liquidate your FDs or lose out on the interest earned.
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
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