Fixed deposits are one of the most sought investment tools. The higher interest rates of a savings account are the main factor that attracts most of its investors. The scheme will also give its investors a guaranteed return. The deposits that are made by the investors are kept for a fixed period, and therefore - the name. Based on the time period, a fixed deposit is categorized as the long-term FD and short term FD. As the name says, the first one comes with longer tenure, and the second one comes with a shorter tenure.
Short-term FDs give a tenure that ranges from 7 days to 12 months. The interest rate is accrued on the principal amount through the selected tenure, and the total corpus is paid at the maturity date.
What is the Short Term Fixed Deposit
A short-term Fixed Deposit is a financial tool that is provided by banks and NBFCs. They also encourage people to deposit money and earn good short-term FD rates. The advantage of depositing money in an FD is that it will give you higher rates than a savings account. The period of the FD ranges from 7 days to 10 years.
A short-term FD has a maturity tenure of a minimum of 7 days to a maximum of 12 months. The short-term FD interest rates would vary from bank to bank and could also be revised at any time.
Investors can also withdraw their deposit prematurely. Most banks and financial institutions would charge a penalty for the premature withdrawal. However, the rules for premature withdrawal would vary from one institution to another. Investors can also get a loan with the FD account as collateral. This will assist the investor in meeting their liquidity needs while continuing their FD investment. Banks provide loans, such as home loans, loans against property, and personal loans against the FD.
Components of a Short Term FD
Mentioned below are the major features of a short-term fixed deposit:
1) Period: | A short-term fixed deposit will range from a period of 7 days to 12 months. |
2) Short Term FD Interest Rates: | The interest rate on short-term FDs is comparatively lower than other fixed deposit schemes such as post office FDs, time deposits, and much more. Though, the longer the investment tenure, the higher would be the interest rates. |
3) Facility for Renewal: | You can opt to renew your fixed deposit account when it matures. Also, the majority of the banks will give you the facility to auto-renew. |
4) The Minimum Investment Amount: | The minimum sum that you can deposit in the short-term FD will vary from bank to bank. Typically, for most banks - the minimum deposit amount is Rs. 1,000. |
5) Taxes on the Interest Earned: | The interest that is earned on an FD account is taxable, and the tax rate will depend on the individual income tax slab rates. |
6) Premature Withdrawal: | Most of the banks would allow the depositors for premature withdrawals from the fixed deposit accounts. The bank also charges a penalty for withdrawing before maturity. The penalty could be different in different banks. |
7) The Option to Nominate: | The depositors could also nominate the beneficiaries for their deposits. |
Eligibility for the Short Term FD
The eligibility criteria to open a short-term FD are mentioned below.
In order to start a short-term FD account, most banks would ask you to have a savings account with the same bank. This system is open only to Indian residents, and there are some banks that offer it for NRIs.
Short Term Deposit Interest Rates
The table below displays some of the best short term FD rates:
Some of the Best Short Term Fixed Deposits: | Interest Rates for General Citizens: | Interest Rates for Senior Citizens: |
Bank of Baroda | 2.80% – 4.90% | 3.30% – 5.40% |
HDFC Bank | 2.50% – 4.90% | 3.00% – 5.40% |
Kotak Bank | 2.90% – 4.40% | 3.00% – 4.90% |
SBI Bank | 2.90% – 4.40% | 3.40% – 4.90% |
Bank of India | 3.25% – 4.75% | 3.75% – 5.25% |
Canara Bank | 2.95% – 5.20% | 2.95% – 5.70% |
ICICI Bank | 2.50% – 4.90% | 3.00% – 5.40% |
Axis Bank | 2.50% – 5.15% | 2.50% – 5.80% |
How to Open a Short-Term Fixed Deposit Account?
The need to open an account would vary from one bank to another. Most banks will ask you to open a savings account with a short-term fixed deposit account. This will also remove the hassle of collecting the interest amount in person, and it could be directly transferred to your savings accounts.
Also, the account holder needs to be a resident Indian, though some of the banks would offer Non-Resident Indians the option to open a short-term FD account as well.
In order to open a fixed deposit - you will need identity proof, passport size pictures, and address proof.
Advantages of Short Term FDs
Mentioned below are the benefits of investing in a short term deposit:
- Investment in short-term FDs is known to be highly safe, and the market fluctuations do not influence it.
- There is liquidity in the short-term FD where the depositor can withdraw money before maturity. The early withdrawal will also come with some penalty charges.
- The FD account is ideal for short-term saving causes like buying a new vehicle or buying a gift for a family member.
- The interest rates that are offered by short-term FDs are consistent, stable, and attractive. This gives individuals a better return than a savings account.
- It also provides the facility for nominating a beneficiary while opening the deposit account.
- Short-term FDs will allow the depositors to take a loan against their account equivalent to 70-95% of funds. Also, this does not require a guarantor; it would vary from bank to bank.
