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Short-term or Long-term Fixed Deposit – Which one is a smart option?
Posted on Wednesday, July 13th, 2022 | By IndusInd Bank
When it comes to saving money, there are many options to choose from. You can put your money in a savings account or invest in stocks or mutual funds. But what if you’re not sure which option is the best for you?
In this blog post, we’ll compare short-term fixed deposits and long-term fixed deposits – two popular savings options – to help you decide which one is the smartest choice for you.
Short Term Fixed Deposits
Short-term fixed deposits are a safe investment that usually gives you guaranteed returns. A bank might charge you an early withdrawal penalty if you redeem the deposit before the end of its tenure. There is also a penalty for not maintaining your account balance at the time of renewal.
Here are a few things to keep while investing in short term fixed deposits:
- They are ideal if you want to accumulate money for a specific goal
- If you don’t want to make any high-risk investment decisions, short term fixed deposits can be a very good option
- Short term fixed deposits are also the ideal place to park money without worrying about inflation or fluctuating market rates of interest.
- They are a good option if you want to save enough money for your child’s education or marriage.
- They will help you accumulate more money for your goals in the long run.
- Make a long term fixed deposit and also open a recurring deposit. Your money can grow at a faster rate due to the power of compounding.
Long Term Fixed Deposits
Long-term fixed deposits earn a higher interest rate than short-term ones, but you will typically have to wait for a longer period to receive your money back. In some banks, they can be renewed automatically. In others, you will have to inform the bank before your deposit matures.
Here are a few things to keep while investing in long term fixed deposits:
A Note on Compound Interest
When you make a fixed deposit, your bank pays you interest on the money at regular intervals. This interest is calculated on your original deposit amount, so the balance will be higher than what you initially put in. As the balance increases, more interest is earned. This is referred to as compounding.
Final Word
Both short-term and long-term fixed deposits are safe investments. It depends on your lifestyle requirements and how patient you are. With most of the banks offering the option to open a fixed deposit online, you can easily start saving anytime you want from the comfort of your home. So, read up on this guide and make an informed decision.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
