When it comes to saving money, there is an abundance of investment tools available in the market. If you are planning to park your money in stable options that yield good results. You can consider saving your money in short-term or long-term fixed deposits. The two vary based on the tenor. But before you park your savings, it is crucial to understand the difference between the two to choose the one that aligns better with your financial goals.
Here, we will discuss short-term FD vs long-term FD in detail to help you select the type of fixed deposit that suits your needs the best. Let’s begin with the benefits and features of each savings plan.
Here are some of the features provided by short-term FDs and long-term FDs, along with the differences between them:
Particulars |
Short-Term FD |
Long-Term FD |
Tenor Range |
7 days to 2 years |
5 years to 10 years |
Returns Offered |
Comparatively lesser returns |
Higher returns than short-term FDs |
Purpose |
Helps achieve short-term financial goals such as buying gifts, renovations, education fees, and more. |
Helps achieve long-term goals such as a down payment for a new house, vehicle, and luxury purchases, among others. |
Maturity Period |
Short-term |
Long-term |
Liquidity |
Limited or no liquidity due to short tenor |
Premature or partial withdrawals can be permitted by issuers. |
Risks Involved |
Limited scope for growth |
Fixed lock-in period for certain FD schemes |
Auto-renewal facility |
Available |
Available |
Below are some of the benefits of choosing short-term FDs and long-term FDs, and the differences between the two:
Particulars |
Short-Term FD |
Long-Term FD |
Guaranteed Returns |
Yes |
Yes |
Facilities Offered |
Premature withdrawal facility with penalty charges |
Loan and overdraft facilities are available |
Nomination |
Allowed |
Allowed |
Tax-saving Benefits |
Not included |
Applicable on specific FD schemes |
Accessibility |
Easy to access and manage account |
Easy to access and manage account |
A good financial plan is the key to achieving your financial goals. Parking your money in a fixed deposit is essential for building a stable financial portfolio. It is best to save with a short-term FD if you wish to grow your money within a 12-month duration. However, a long-term FD is ideal if you feel the interest rates might lower in the future, and select an FD with a longer maturity term with current interest rates.
Spreading your money in both short-term and long-term fixed deposits provides greater liquidity. It is the combination of the two that helps with your financial goals while ensuring a steady interest income at regular intervals.
Fixed Deposit and Other Investment Comparisons |
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The major difference between the two are tenor and interest rates. While long-term FDs offer higher returns, shorter tenor ones are best suited for investors planning to grow money in the short period to fulfil their financial goals.
Some of the key benefits are
Minimal risk
You can take a loan against the FD at substantially lower rates
Accessibility to overdraft options
Can be utilised as security for credit cards
Higher interest rates and assured returns
As the name suggests, auto-renewal FDs are the ones that renew upon maturity. The financial institutions can renew the FD only when the investor has given the standing instructions to do so while opening the account or during the term of the FD. The auto-renewal feature ensures that it is renewed for the same term as earlier at the current interest rate.
The tax is deducted by the bank or financial institution at the end of the fiscal year. If you have provided your PAN, the standard rate of the tax deduction is 10%. However, if you have not shared your PAN details with the bank, a 20% tax deduction rate will apply.
You can do so by opening multiple fixed deposit accounts with a single bank or different banks.