What are the Benefits of a Short-Term Fixed Deposit

  • Deposit
  • 1 Months ago

Written by - Shriram

A Short-Term Fixed Deposit (FD) can help you achieve your financial goals faster. The premature withdrawal of a short-term FD has low charges, and the interest rates are stable and attractive. The best feature of a short-term FD is that market fluctuations do not impact the interest rate, and you get assured returns.

A fixed deposit is one of the most popular investment tools. The high-interest rates clubbed with the security of guaranteed returns make FDs attractive. An FD can be categorised into short-term and long-term FDs, depending on the investment period. As the name suggests, short-term fixed deposits have a tenure that ranges from 7 days to 1 year.

Shriram offers short-term and long-term FD options with high-interest rates of up to 8.40% per annum, including an additional 0.50% for senior citizens. Use the Shriram FD calculator to determine how much interest you can get on a deposit of your choice.

A short-term FD has multiple features that could benefit you and the money you plan to deposit. Let us explore the characteristics of a short-term fixed deposit and find all the benefits you could use to grow your finances efficiently:

What is a Short-Term Fixed Deposit?

Banks and Non-Banking Financial Companies (NBFCs) provide a short-term fixed deposit. A short-term FD encourages people to deposit money and cultivate a good saving habit. An advantage of investing in a short-term fixed deposit is that you can get higher interest rates than a regular savings account. The interest rates vary according to the financial institutions and can be revised at any time. However, these changes will not affect an ongoing fixed deposit as the interest is predetermined.

You can withdraw a short-term deposit easily before the maturity date. However, some financial institutions may charge a penalty for early withdrawal. In contrast, a few companies have zero penalties for the withdrawal if it is not in the case of an emergency.

Features of a Short-Term Fixed Deposit

  • The tenure of the short-term deposit is usually between 7 days and 12 months. Some banks or NBFCs may not have the facility of 7 days but may have at least 12 months.
  • A short-term FD is a one-time investment where you deposit money once as a lump sum.
  • You can choose to renew the short-term fixed deposit once it matures but also have the option to use it to achieve your financial goals.
  • The tax will be deducted on a short-term FD as per the Income Tax Act, 1961.
  • The rate of return on a short-term deposit will be higher than that of a regular savings account.

Advantages of a Short-Term Fixed Deposit

  • A short-term deposit is ideal for saving purposes like buying a new vehicle or a gift for a family member.
  • If you wish to withdraw your deposit prematurely, you only have to pay a penalty of 1% of the interest rate.
  • You can take a loan on your short-term FD. You can use up to 90% of your FD funds for the loan.
  • Investing in short-term FDs is considered to be very safe. Market fluctuations will not impact the interest rate or the principal amount.
  • The interest rates available on short-term FD are attractive and stable. They can give you better returns than a savings account.

Eligibility for a Short-Term Fixed Deposit

The eligibility criteria of a short-term FD depend on the bank or NBFC you have chosen. Here are the details on eligibility and documentation that will be common across most banks or NBFCs:
 
  • To start a short-term FD, you must have a savings account to link to the deposit.
  • You need to be above 18 years of age to be able to apply for a short-term FD. A minor may apply for an FD with their guardian as the caretaker of the account.
  • A short-term FD facility is only available for Indian citizens. Some banks offer short-term deposits for Non-Resident Indians (NRIs) as well.
  • The documents you will require to open an FD include Aadhaar Card, PAN (Permanent Account Number) Card or any other documents representing your identity and address proof.

Conclusion

A short-term deposit is an investment option for anyone to earn more interest on their savings. If you have a low credit score and need a loan, you can use the loan against a fixed deposit facility to get the loan with no obstacles or procedures to slow you down. All you need is a few documents to prove your address and identity.

With Shriram, you can invest in a short-term FD to initiate a healthy savings habit. You get interest rates of up to 8.40% per annum on a regular FD account which includes 0.50% additional interest for senior citizens. Quickly start a fixed deposit online and gain all the benefits that come with it.

FAQs

1. What are the benefits of a fixed-term deposit?

There are many benefits of a fixed-term deposit. One of the most popular ones is assured returns. Apart from that, you can also get higher interest rates than a regular savings account. With a Shriram FD, you get all these benefits, like the added interest of 0.25% for all renewals of matured fixed deposits.

2. Which FD is a better short-term or long-term deposit?

Both the term deposits have their advantages. However, a short-term FD is best for customers who want to earn interest on a lump sum of money for a short period. This type of term deposit helps them achieve financial goals and may also reinvest the saved money into a new FD scheme.  

3. What affects the interest rate for a short-term FD?

An increase in the demand for money or credit will increase interest rates. Short-term interest rates impact the credit risk of an investor. The credit risk can become low if the person invests in a long-term FD after the short-term FD’s maturity.

Key Highlights:

  • Achieving your short-term financial goals becomes easy with a short-term FD.
  • Premature withdrawal for a short-term FD has low penalty charges.
  • The interest rates on a short-term FD are attractive and stable.
  • Market fluctuations do not affect the interest rate on a short-term fixed deposit.