Fixed Deposits are investment instruments offered by banks that are registered entities that provide certain financial and investment services.  Your money remains deposited with the bank for a specific tenure, and you gain a fixed interest. Saving a portion of your earnings is always wise.

Earnings from high Fixed Deposit interest rates form a large portion of their investment bucket. Fixed deposits are important components of anyone’s portfolio and are the safest option for investing funds.

Benefits of long-term FDs

Long-Term FDs have a tenure ranging from one to 10 years. They offer higher returns than Short-Term FDs and Savings Accounts. Here are its benefits:

• Long-Term FDs are your solution to long-term passive income requirements. Even if you do not require the extra amount right now, you can use it to plan your long-term goals, such as paying for your children’s education, purchasing a new home, etc.
• It is a great way to increase wealth rather than keep it idle in your bank. Deposits earn higher interest rates than Savings Accounts. Hence, keeping extra money invested in an FD is always advisable.
• You can also invest in Tax-Saver FDs stretching over five to 10 years. They block your invested amount for the period while offering tax benefits under Section 80C of the IT Act. You cannot break it between the agreed tenure since you get tax benefits.
• If you have invested in Long-Term FDs and an emergency arises, you can avail yourself of an easy and hassle-free Loan Against your FD as collateral. Breaking it before maturity becomes costly since there is a penalty. You can decide how much to invest and calculate the returns using the FD calculator.
• With Long-Term FDs, you can quickly get a Credit Card against your deposit amount. Overdrafts can also be availed against FDs since they are collateral for the facility.
• It is ideal for senior citizens as they usually do not have large fund requirements in a short period. Instead, they can earn a high interest rate and withdraw money through Monthly Interest Credit mode.

Benefits of short-term FDs

This investment involves locking your money for a certain period, usually seven days up to one year. It is ideal for buying a device for your home. Its benefits are:

• Unlike market-related investments, Short-Term FDs are the safest investment unaffected by market forces.
• Fixed Deposit interest rates change periodically. You get the most recent return rate whenever you invest in a new FD or when an existing FD is auto-renewed. If you foresee the interest rates falling, lock up your funds for a longer tenure. Due to rising inflation, money loses its value. To control it, RBI increases the interest rate.

Conclusion

If you invest money in a Long-Term FD at a lower interest, you will lose out highly. Thus, it is better to invest in a Short-Term FD.