Fixed deposits (FDs) offer safety of the principal amount along with guaranteed returns. One of the key benefits of FDs is that you can choose the terms based on your funds’ requirements and make use of the money as and when you wish. Also, you can avail the funds with interest and reinvest as and when you get the chance to lock-in your money for a higher interest rate.
Short-term FDs typically range from a few weeks to a year attracting investors seeking liquidity while earning better returns than a savings account. Let’s understand the benefits of short-term FDs and what you should do.
Short-term fixed deposits are investment instruments where an investor deposits a sum of money with a bank or financial institution for a tenure ranging from 7 days to 12 months depending on the financial institution. In return, the institution offers a fixed rate of interest, which is higher than that of a regular savings account but lower than long-term FDs. The interest earned can be paid out at regular intervals or compounded, depending on the investor’s preference and the bank’s policies.
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One of the prime advantages of short-term FDs is their liquidity. Investors can park their funds for a short period without locking them in for years. This is particularly beneficial for those anticipating the need for funds in the near future.
Moreover, FDs are one of the safest investment options, especially when placed with reputed banks. They are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance for up to ₹5 lakh per bank per depositor, adding an additional layer of security.
Interest rates are subject to market fluctuations. Short-term FDs allow
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