What is Short-Term Fd?
Fixed deposits are one of the most popular investment options. If you are wondering what makes them alluring? Consistent and higher returns at low risk are what makes them attractive. The Short term Fd investment option provides financial liquidity, allowing you access your maturity amount quickly as the overall tenure isn’t beyond a year. Also, if you are unwilling to make a long-term investment, you can always invest in short-term FDs. Although the interest rate is low compared to long-term fixed deposits, this low-risk wealth creation avenue assures guaranteed returns. Thus, when looking for investment opportunities that bring you appropriate gains with maximum financial security, short-term FDs are a popular choice among investors.
Short Term Fd Interest Rates
The following table reflects the interest rates offered by different popular banks on short-term fixed deposits. You may consider these rates and accordingly invest in a suitable option:
| Banks Offering the Best Short-term Fixed Deposits | Interest Rated for General Public | 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% |
Advantages of Investing in a Short-Term Fixed Deposit Account
Investing your money in short-term FDs has the following advantages:
- Financial Security: If you are looking forward to parking your idle funds for a brief period and earning some interest on them, then short-term FDs would be the best choice.
- Nomination: As short-term fixed deposits allow the nomination of a beneficiary, accessing the deposit amount becomes easy in case of an investor’s death.
- Low Penalty: Although you have to pay a penalty for premature withdrawal, the penalty rate is very low. It is approximately 1% of the short-term FD interest rate.
- Can be Held as a Collateral: You can use your short-term FDs as collateral to avail of a loan or a margin facility from your stock broker. You can also avail of a loan up to 95% of the FD maturity amount with minimum documentation.
- Stable and Attractive Interest Rates: Short-term FDs offer you interest rates that are much higher than savings account rates. They are more consistent and, hence, attractive for many investors.
Short-Term FDs: Eligibility and Documents Required
Before you opt for short-term fixed deposits, consider the following eligibility criteria:
- When investing in short-term FDs, ensure you have a savings account with the respective bank.
- You must be an Indian resident to open a short-term FD account. However, some banks offer Non-Residents of India (NRIs), too, an option to invest in short-term FDs.
Keep the following list of documents handy when opting to invest in a short-term fixed deposit account:
- FD application form- fill it out online or offline at the bank.
- Address proof, including documents like Aadhar card, passport, driving licence, latest electricity bill, etc.
- Identification proof, including documents like PAN card, Aadhar card, voter’s ID, and passport.
- A passport-size photo
Must-Know Features and Components of a Short-Term Fixed Deposit
If you are about to invest your money in Short term Fd, the following are the features and components you must be aware of:
Tenure
The tenure of the short-term fixed deposit ranges between 7 days to 12 months. The short duration of this investment option offers you financial flexibility and quick access to your funds. It is suitable for those seeking capital preservation with liquidity maintenance.
Interest Rates on Short term Fd
The interest rate offered on a short-term FD is much lower than a long-term FD because of the tenure involved. The higher the tenure, the better interest rate. When it comes to senior citizens, the interest rate is higher compared to the basic applicable rate.
Renewal of Fixed Deposit
Many banks provide you the option of renewing your short-term fixed deposit on maturity. Also, banks offer you an auto-renewal policy on fixed deposits, where your fixed deposit will get renewed on maturity without you having to do anything. However, the bank will notify you about the same.
Minimum Investment Limit for FD
When opting for a short-term fixed deposit, you must be aware of the minimum investment limit accepted by your bank. This limit differs from bank to bank. For most banks, the minimum deposit limit is ₹1000; however, it may be ₹5000 in the case of some private banks.
Income Tax Applicability
The interest you gain on your Short-term Fd is taxable in India. However, the tax rate will depend on the income tax slab rates applicable to you. Thus, you must pay tax on the interest earned but can also claim a deduction for the investment made.
Premature Withdrawal Policy
Even with a short-term fixed deposit, you can opt for a premature withdrawal, i.e. withdrawing your money before the expiry of tenure. It will attract some penalties, and the penalty rate differs with different banks.
Adding a Nominee
Add your dear ones as nominees to your short-term fixed deposit account and secure their financial future. You can nominate anyone during the tenure of the FD, not necessarily at the time of creation.
Conclusion
Thus, Short-term Fd is a lucrative investment option when looking for a secure investment avenue. If you have some idle financial resources and your financial risk appetite is low, park them in short-term FDs. Enjoy the interest rate on your investment with the flexibility to access these funds faster, as the tenure is usually up to 12 months. However, the interest rate and investment terms and conditions may differ from bank to bank. Thus, having complete information about your probable investment plan is a must before you take any step further. Invest right and earn attractive returns, making the right financial decisions.