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.

Features Of Short-Term FD vs. Long-Term FD

Here are some of the features provided by short-term FDs and long-term FDs, along with the differences between them:


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


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




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



Benefits of Short-Term FD vs. Long-Term FD

Below are some of the benefits of choosing short-term FDs and long-term FDs, and the differences between the two: 


Short-Term FD

Long-Term FD

Guaranteed Returns



Facilities Offered

Premature withdrawal facility with penalty charges

Loan and overdraft facilities are available




Tax-saving Benefits

Not included

Applicable on specific FD schemes


Easy to access and manage account

Easy to access and manage account

Short-term FD and Long Term FD for TDS saving

Fixed deposits are low-risk investment options. However not many are aware that under the Income Tax Act of 1961, the interest earned on a fixed deposit is fully taxable. However, there are certain provisions under section 80C of the Income Tax Act which allow you to legally avoid tax on the interest income.

One of the ways to make sure that the interest earned on the FD is non-taxable is to ensure that the interest earned in a financial year does not exceed ₹40,000. The limit for interest income for senior citizens is ₹50,000. When choosing between short-term vs long-term FD, choose the principal amount whose interest income is less than the limit.


You can also choose to save the tax by investing in a tax-saving fixed deposit. You can avail of tax benefits up to ₹1.5 Lakhs under section 80C in tax-saving fixed deposit. But, the only condition is that the minimum lock-in period is 5 years during which you can not withdraw the amount. 


If your total income is below the minimum taxable limit, you are eligible for tax exemption. To save TDS, you must fill the forms 15G and 15H and submit them to your bank or any other financial institution. These declarations allow you to ensure that no tax is deducted from your yearly interest income from the fixed deposit. 

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Short-term FD and Long-Term FD for a Good Financial Plan

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.


The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort. 

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products. 

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What are the differences between a long-term and short-term FD?

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. 

What are the benefits of a long-term FD?

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

What are the benefits of auto-renewal FDs?

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.

What is the tax on interest earned on FD?

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.

How can I spread my interest earnings over multiple FDs?

You can do so by opening multiple fixed deposit accounts with a single bank or different banks.

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