How to Choose the Right Fixed Deposit Tenure for Maximum Interest

How to Choose the Right Fixed Deposit Tenure for Maximum Interest

29 June 2024 | By INDIE

One of the popular investment options nowadays is fixed deposits or FDs. Guaranteed returns are the reason behind the popularity of these accounts amongst working professionals. However, check the FD tenure before signing up for a fixed deposit. It is crucial to check the FD tenure because it influences the interest. You may question, “What is the minimum tenure of a fixed deposit?” Well, the tenure ranges between seven days and a decade. A suitable fixed deposit tenure can help you reach your financial goals by maximizing your interest. So, here are the factors you should check before selecting the fixed deposit minimum period:


A. Interest Rate:

Considering Interest rates is vital before choosing the minimum period for FD because they determine the sum you will earn when the FD matures. The FD interest rates vary from bank to bank. Hence, you must compare the rates offered by different banks and choose a competitive interest rate. Check the interest rates because even a minute difference can affect your overall returns.

 B. Time Horizon:

The FD minimum period ranges between seven days to seven years. Your choice of the FD tenure relies on your time horizon and financial goals. You can access your funds quickly with a shorter tenure. On the other hand, you can earn a higher interest with a longer tenure. For instance, goals like buying a new gadget and vacation require a shorter tenure. Otherwise, opt for a longer tenure to save for your child’s education or buy a house. Carefully assess your financial objectives and choose an FD tenure aligning with your requirements. Check the flexibility of tenure offered by the FD, like the option of customizing the duration.

C. Withdrawal Terms:

You may need to redeem your FD before the end of the tenure to face an emergency. Check and understand the premature withdrawal terms because a few FDs may allow partial withdrawals. Some may even allow an early closure but incur a reduced interest rate. So, carefully review your fixed deposit’s terms and conditions to ensure adequate flexibility to withdraw your funds during unforeseen circumstances.

Also Read: Understanding the Fixed Deposit Laddering Strategy

D. Diversification and Laddering:

Diversify your FD investments by opting for different tenures for liquidity. In the laddering strategy, you spread your deposits in numerous FD minimum periods. You can enjoy the benefit of higher interest rates because of longer tenures while simultaneously having access to funds regularly as the FDs with shorter-term FD minimum period ends.

E. Risk Appetite:

Determining your risk tolerance level is vital before choosing your FD’s tenure. Even though fixed deposits are not risky, interest rate changes can affect long-term FDs. Therefore, opt for a shorter tenure if you have a low-risk appetite because you can access your money quickly and lessen the risk of interest rate changes. Choose a longer tenure if you have a high-risk appetite to leverage expected interest rate increases.

F. Auto-Renewal Options:

Banks and NBFCs offer account holders auto-renewal options for FDs. While the auto-renewal facility is convenient, review whether you want the auto-renewal facility for your FD or not. Auto-renewal may not suit your financial goals always or the prevalent interest rate.

G. Financial Goals:

Ascertain the purpose behind this investment, the time by when you need the returns, and the specific reason behind the investment before deciding the FD tenure. If you have a short-term goal, choose a tenure of approximately one to two years. Opt for a longer tenure and enjoy higher interest rates for long-term goals.


What are the Advantages of FDs?

Here are a few benefits of fixed deposits:

●  Fixed deposits offer attractive interest rates, which can help your savings grow.

●  You can customize the tenure of your FD according to your preference.

●   You can open your FD online without visiting the bank.

The FD tenure affects your financial security. Choose a term matching your risk appetite, financial objectives, and time horizon. Observe and change your FD tenure regularly to match your financial goal and current situation.




Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your 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 making any financial decisions based on the contents and information.