Fixed deposits are the common name on the investment profiles of many in India. The massive popularity has led to the launch of various types of fixed deposits with different features. Banks, non-banking financial companies, Government, Government-backed entities, and many others currently offer fixed deposits with handsome interest rates.
This discussion is focused on short term fixed deposits. Let’s explore the significant features and benefits of these fixed deposits. We will also take a look at the short term fixed deposit interest rates for 2024 and investment requirements.
Defining Short Term Fixed Deposits
Fixed deposits generally have tenures ranging from 7 days to 10 years. FDs with a tenure between 7 days and 1 year are termed short term fixed deposits. Banks and NBFCs offer these investment tools. These are ideal to meet short term financial goals while ensuring assured returns and high interest rates.
Key Features of Short Term Fixed Deposits
Here are the important features of short term fixed deposit investments.
Minimum Investment Amount
Banks and NBFCs can have different minimum amount requirements for their FDs. Generally, the minimum deposit amount is ₹ 1000.
Premature Withdrawal
Most FD issuers permit premature withdrawal on short term fixed deposits. However, such withdrawal can be subject to a penalty that the respective issuer determines.
Auto-Renewal Facility
You can decide to renew or withdraw the FD at maturity. Many banks offer auto-renewal facilities to enable quick and hassle-free reinstatement.
Nomination Facility
You can nominate someone under your short term fixed deposits. Make sure to mention the same when opening the FD account.
Benefits of Short Term Fixed Deposits
Enjoy the following benefit with short term fixed deposits.
Secure Investment
Market fluctuations typically do not influence short term fixed deposits. Therefore, the bank assures the return on them.
Easy Loan
You can avail of a loan of up to 95% of your short term FD. The FD is used as collateral and secures the loan. Banks approve the loan without any hesitation and provide lower interest rates than personal loans.
Emergency Withdrawal
The investment in an FD can be withdrawn before maturity if needed. However, a small penalty is charged for an early withdrawal.
Liquidity
The short tenure of 1 year or less makes short term FDs highly liquid. These FDs are also a great alternative to regular savings accounts to perk your capital.
Higher Returns than Savings Account
Fixed deposits offer higher interest rates than regular savings accounts. When a sum is required shortly, making a fixed deposit may seem less convenient since you will need it soon. However, with short term fixed deposits, you can invest the sum for a short time and earn better returns without taking on much risk.
Portfolio Diversification
These fixed deposits are a great way to create a balance against high-risk investments in your portfolio.
Short-Term Corporate Fixed Deposits Interest Rates 2024
A short-term corporate fixed deposit is an investment in which an individual deposits a given sum of money within a corporate body for an agreed-upon time frame, usually a few months to a few years. These fixed deposits are regarded as a reasonably safe investment option and provide a fixed interest rate for the duration of the agreement.
| Short Term Corporate Fixed Deposit | Interest Rate |
|---|---|
| For Senior Citizens | For General Citizens |
| Shriram Finance Ltd | 8.03% to 8.40% |
| Bajaj Finance Ltd | 7.39% to 7.65% |
Short Term Fixed Deposits Interest Rates 2024
The table below shows the best short term fixed deposit interest rates. You can notice these corporate FDs offer higher interest rates to senior citizens than regular investors.
| Short Term Fixed Deposit | Interest Rate |
|---|---|
| For Senior Citizens | For General Citizens |
| HDFC Bank | 3.00% to 5.40% |
| Bank of Baroda | 3.30% to 5.40% |
| SBI Bank | 3.40% to 4.90% |
| ICICI Bank | 3.00% to 5.40% |
| Axis Bank | 2.50% to 5.80% |
| Canara Bank | 2.95% to 5.70% |
| Bank of India | 3.75% to 5.25% |
| Kotak Bank | 3.00% to 4.90% |
Tax Implications on Short Term Fixed Deposit
As per the Income Tax Act of 1961, interest accumulated in short term fixed deposits is subject to taxation. A 10% tax is levied on investors who can show PAN. The imposition can increase to 20% for non-Pan holding investors.
Eligibility Criteria for Short Term Fixed Deposits
The eligibility criteria for investing in a short term fixed deposit varies from one bank to another.
- Banks may ask you to open a savings account with them if you don’t hold one already while investing in a short term FD. It is to make the process of transferring interest and other transactions easier.
- Most banks offer short term fixed deposits to Indian residents. A few FD issuers may cater to NRI investors
Document Requirement for Short Term Fixed Deposits
The document requirement depends on whether or not you are an existing account holder at the FD issuing bank. New customers, unlike most existing customers, have to produce documents to complete KYC. The following types of documents might be required!
- Identity proof (PAN Card, Aadhar Card, Voter Card, Passport, etc.)
- Address proof (PAN Card, Aadhar Card, Voter Card, Passport, etc.)
- Passport-size photographs
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FAQs about Short Term Fixed Deposit (FD)
What happens if I forget to claim the FD on the maturity date?
It depends on the policy of your FD issuer. If there is an auto-renewal option, the amount can be reinvested. The FD issuer can also transfer the amount to your savings account linked with the FD.
Does deposit insurance cover short-term fixed deposits?
Short term bank fixed deposits are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC). This Reserve Bank of India (RBI) subsidiary generally insures bank savings, current, recurring, and fixed deposit accounts with up to ₹ 5 lakhs.
Can I invest in a fixed deposit for 7 days?
Yes, you opt for a fixed deposit with a tenure of 7 days in many banks and NBFCs. Based on the issuing entity, you will receive the features and advantages of short term fixed deposits.
Is long term FD a better investment option than short term FD?
It depends on your investment goal. If you want to invest a sum for less than a year while ensuring good returns, short term fixed deposits are suitable. Long term FDs are best suited for long term financial goals.
What are the requirements for NRIs to open a short term fixed deposit account in India?
NRIs need to produce valid passports, work permits, and visas to invest in Indian fixed deposits. Remember that the interest rates might be different for NRIs than for Indian residents.
Can I reinvest the short term FD amount at maturity with a different tenure?
Once the FD matures, you can reinvest with the same tenure or pick a new tenure as offered by your FD issuer.
How should I select the best short term FD?
Look for a short term FD that offers a high interest rate in the market with a tenure and terms that suits your requirements.
