Short Term FD vs Long Term FD: 5 tips for selecting the right fixed deposit tenure

financialexpress.com:

Fixed Deposits (FDs) remain a preferred choice for investors seeking stable returns in India. However, one crucial aspect often overlooked is the tenure selection, which can significantly impact the returns and liquidity of the investment. Choosing the right FD tenure demands thoughtful consideration aligned with individual financial goals and circumstances.

The tenure of an FD refers to the duration for which the investment remains locked in. It ranges from a few days to several years, and each duration has its implications on returns and accessibility of funds. Shorter tenures typically offer lower interest rates but provide quicker access to funds, while longer tenures yield higher interest rates but limit liquidity.

Here are five tips to help you take the right decision.

Before committing to an FD tenure, assess your financial objectives and requirements. If you anticipate needing the funds for a specific purpose in the near future, opting for a shorter tenure would be prudent. Conversely, for long-term goals or when certain of not requiring immediate access to the funds, longer tenures offering higher interest rates could be more beneficial.

Also Read: 6 things to know before taking a loan against fixed deposit

The interest rates offered on FDs can vary based on the tenure. Generally, longer tenures attract higher interest rates. Analyse the prevailing interest rate scenario and forecasts to gauge potential fluctuations. Consider splitting the investment into multiple FDs with varying tenures to hedge against interest rate changes and maintain liquidity.

Taxation on FD interest can significantly impact your returns, especially for individuals in higher tax brackets. Shorter tenures might lead to lower overall