Achieving your financial goals in life is essential. Whether you want to fund your kid’s higher studies, enjoy a comfortable retirement, or go on a much-awaited vacation, smart financial planning is necessary. This is where Fixed Deposits can play a role. They are secure, offer stability, and ensure assured returns.
When choosing between Short-and Long-Term Fixed Deposits, you need to know the fundamental difference between the two. So, let us learn more about them.
What is a Short-Term FD?
A Short-Term FD is an investment with a maturity period between seven and 91 days. You can conveniently open such an FD and invest a sum, allowing it to grow over a short tenure. These FDs are usually ideal for short-term goals like buying a new vehicle.The various benefits of such FDs include:
- Theyoffer quick access to funds. Hence, if you need liquidity in the short term, you can easily use a Banking appto open a Short-Term FD.
- Once this FD matures, you can consider the changing financial condition before reinvesting the funds or making any necessary adjustments.
- They usually offer different FD interest ratesfor different tenures. Hence, you could consider the available tenures and pick one based on your financial goals.
What is a Long-Term FD?
A Long-Term FD has a maturity period that extends beyond 12 months and can go up to 10 years. Such an FD suits individuals with a longer investment horizon, i.e., people willingto lock in their funds for a substantial period. A few of the key benefits of investing in a Long-Term FD include:
- These FDs are suitable for your long-term goals like planning for your retirement or purchasing a home.
- They usually offer a higher interest rate than Short-Term FDs. This could boost the overall returns on your investment.
How to choose?
Before choosing between a Short- and Long-Term FD and opening an FD online, consider these crucial factors:
- Interest rate outlook
When picking between the two FDs, consider the prevailing FD interest rates. You also need to understand the economic outlook. If rates are expected to fall, choosing a Long-Term FD might be beneficial. Meanwhile, if the rates are high, short-term reinvestment opportunities could be helpful.
- Your economic goals
When opening a Fixed Deposit Account, you need to align its tenure to your financial goals. If you are saving for long-term goals like buying your dream home or paying for your child’s higher education, you can opt for Long-Term FDs. Conversely, if you open an FD to fulfil a short-term goal, you can choose a Short-Term FD.
Conclusion
Now that you know the difference between a Long- and Short-Term FD, you can easily consider your requirements and opt for a suitable one. In case of doubts, you can easily consult with a financial advisor.
