You should consider the various key factors and plan accordingly before opting for an FD. There are long-term and short-term FDs. Long-term FDs provide you with higher returns and short-term FDs help to grow your funds in a short period. It also impacts how quickly you can access your funds.

There are various factors to consider before you choose an FD like the interest rate, the sum deposited and the tenure. Depending on your needs you can opt for a long-term or short-term FD.

The long-term FD can give you higher returns and much better liquidity which can help you meet your financial goals. The short-term FD can help you grow your funds over a short period (2 years). You should plan your fixed deposit maturity based on your needs and financial situation.

Long-term FD

In this, you are allowed to deposit funds for an extended period ranging from 2 - 10 years for a fixed rate of interest. The FD interest rates offered are higher than the short-term counterparts. The benefits are:

• It can function as an emergency fund for quick requirements.
• The rate of interest offered is higher.
• Senior citizens are offered an additional interest above the base value
• The FD can be renewed automatically on maturity using the auto-renewal feature.
• You get the flexibility to choose the deposit amount, tenure and maturity terms.
• There is a provision of a loan or overdraft against your FD.
• It offers tax savings under Section 80C of the Income Tax Act.
• The funds can be used to meet your long-term requirements like buying a home, vehicle and more.
• It offers credit score building using credit cards against long-term FDs.

Short-term FD

In this, you can deposit funds for a tenure between a minimum of 7 days to a maximum of 2 years. It allows you to multiply your amount over a short period and is good for quick liquidity requirements. The benefits are:

• It offers higher interest rates than the savings account.
• It offers a shorter lock-in period.
• It offers lower minimum deposit amounts ranging between Rs. 1000 - 1500.
• It provides assured safety with no market-linked risks.
• You can get the benefit of the power of compounding.
• It is good for short-term requirements like buying a vehicle, gifts and more.

How can you choose between the two options?

The decision to opt for a long-term or a short-term FD should be based on the investment horizon and some external factors. In case of falling interest rates it is best to go for long-term FD as it can offer you returns at a fixed interest rate. You should opt for short-term FD during inflation, as the interest rate goes high.

Both the options have their benefits and to get the best results you should assess them carefully. If you are interested in the stock market then you can use the Appreciate app to trade online.

The author is a blogger and likes to blog about the various options available for investments. Currently, the author has explained about Fixed Deposits options.