How to Choose the Best FD Tenure Based on Your Financial Goals
Fixed Deposits or (FDs) are among the safest and, hence, the most reliable ways for wealth generation. Choosing the FD tenure is a big task because it needs to align with your long-term and short-term needs. Ideally, once invested, the amount should not be withdrawn until fruition in order to receive the full interest amount.
In this blog, we will learn about FD tenures, FD interest rates, and the factors to consider when making this decision.
Understanding the tenures For Fixed Deposit in India
Your financial situation can be categorised into short-term, mid-term, and long-term. Let’s find out how the FD interest rates vary for a given amount as per your tenure of investment:
1. Short-Term Goals (0-1 year)
A short-term tenure can be beneficial if you are saving up for something urgent and in a foreseen future, such as a trip or purchasing a new car or gadget. Short-term deposits offer you the flexibility to access your funds when you need them easily.
Moreover, the penalty charges for premature access of funds are the least in this case. Short-term FDs are also a good idea if you have some extra cash and instead of just letting it lay dry in your savings account, you can invest it in an FD and get better returns.
2. Medium-Term Goals (2-5 years)
Medium-term FDs are suitable for achieving financial goals that are still 4 to 5 years away. They offer higher interest rates than short-term FDs while providing a decent option for liquidating your funds in case of an emergency.
Mid-term fixed deposits in India are ideal if you are saving for higher education, a wedding, or planning for an expensive car or property.
3. Long-Term FDs (5 years and above)
These FDs are fixed for a long period and hence carry high FD interest rates. They show compounded growth and are ideal for securing a major amount of money for your future. These can include retirement savings, a child’s education, purchasing a property and more.
Long-term FDs carry the highest premature penalty of the three.
Factors to consider while choosing the right FD tenure
Listed below are the factors to consider when choosing your FD tenure:
- Interest Rates: The FD interest rate varies explicitly over tenures and banks. Do your research and find out the interest rates different banks offer in terms of money invested and tenure. This helps you to ensure that you get maximum returns for your investment.
- Tenure Options: Inquire about the tenure options provided by the bank you are interested in and the FD interest rates available against that tenure. Some banks often offer better returns for a short-term fixed deposit than a long-term or a mid-term one.
- Penalty for Premature Withdrawal: Whether short—or long-term, fixed deposits require discipline and commitment. Hence, liquifying them has a process, and it doesn’t come without penalties.
Hence, before you invest, read the terms and conditions related to premature withdrawals. Always try opting for FD schemes that offer more flexibility by providing a lower penalty rate.
- Tax Implications: Your interest rates are taxable under the income slab. However, under Section 80 C of the Income Tax Act, if you have opted for a 5-year tax-saving fixed deposit, you are eligible for deductions.
Evaluating your tax liability and exploring options helps you generate maximum wealth even after tax deductions.
Conclusion
Choosing the right fixed deposit in India can be challenging. You must consider more than just the end amount. You also need to factor in the FD interest rates, tax returns and more to make a completely informed decision about your investment.
