Short-Term or Long-Term Fixed Deposits: Which FD is best for you?

Short Term Vs Long Term Fixed Deposits: Features and Benefits of short-term FD and long-term FD.
Short Term Vs Long Term FD
3 mins
30 March 2024

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.

What is a short-term fixed deposit?

A short-term fixed deposit (FD) is a financial instrument offered by banks and financial institutions that allows individuals to deposit a specific amount of money for a fixed period at a predetermined interest rate. The term "short-term" refers to the relatively brief duration of the deposit, typically ranging from a few weeks to a few months.

Features and benefits 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 7 days to 2 years
  • The minimum amount for deposit varies. Bajaj Finance offers minimum deposit amount of Rs. 15,000
  • 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.

What is a long-term fixed deposit

A long-term fixed deposit (FD) is a financial instrument offered by banks and financial institutions that allows individuals to deposit a specific amount of money for an extended period at a predetermined interest rate. Unlike short-term fixed deposits, long-term fixed deposits have a longer tenure, usually ranging from a few years to several years.

Features and benefits of long-term fixed 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 FD 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

Short-term vs mid-term vs long-term FD

Short-term, mid-term, and long-term fixed deposits (FDs) refer to different time durations for which you can deposit money with a bank or financial institution. Here's a breakdown of the differences:

a. Short-term FD: Short-term fixed deposits have a relatively brief duration, typically ranging from a few weeks to a few months. They offer a shorter commitment period and are suited for individuals who want to invest their money for a short period and have access to the funds in the near future. Short-term FDs often provide lower interest rates compared to longer-term options.
b. Mid-term FD: Mid-term fixed deposits have a moderate duration, usually ranging from a few months to a few years. They offer a balance between short-term and long-term investments. Mid-term FDs are suitable for individuals who can keep their money invested for a moderate period and want to earn higher interest rates compared to short-term options. The interest rates for mid-term FDs are generally higher than short-term ones but lower than long-term options.
c. Long-term FD: Long-term fixed deposits have an extended duration, typically ranging from a few years to several years. They are suitable for individuals who can commit to keeping their money invested for a longer period without needing immediate access to the funds. Long-term FDs often offer higher interest rates compared to short-term and mid-term options, allowing individuals to maximize their returns over time.

When choosing between short-term, mid-term, and long-term FDs, consider your financial goals, liquidity needs, and risk tolerance. Short-term FDs provide more liquidity but offer lower returns, while long-term FDs offer higher returns but restrict access to funds for a more extended period. Mid-term FDs provide a balance between the two. It's important to compare the interest rates, terms, and conditions offered by different banks or financial institutions to make an informed decision that aligns with your specific requirements.

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 42 months will earn you up to 8.60% p.a. interest. As a senior citizen you can look at growing your investment capital by up to up to 8.85% p.a.

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.

Calculate your expected investment returns with the help of our investment calculators:

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As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.