Generally, it is believed that people can only invest in mutual funds or the stock market if they want to park their extra money for a shorter period of time. Everyone is not ready to invest in such schemes because they are considered risky, and they do not offer guaranteed returns as they tend to change according to the market condition. Don’t get disheartened because banks and NBFCs do offer a fixed deposit saving scheme for a shorter duration also and they are risk-free.
A fixed deposit can be made for a flexible tenure which typically ranges between 7 days to 10 years. Even if you invest for a shorter period of time you can still earn decent returns. A fixed deposit account opened for a maturity term from 7 days to a maximum of 12 months is called a short-term deposit. On a short-term deposit, the interest is accrued on the principal amount through the selected tenure, and the total corpus is paid at maturity
A fixed deposit is a savings account where you deposit a set amount of money for a set period of time. The interest rate is usually higher than a regular savings account, and you typically can’t access the money during the term. Three-month fixed deposits are a popular option because they offer a good balance between interest rates and accessibility. You can typically withdraw the money after three months, but if you need it sooner, you may be able to access it with a penalty.
Salient Features Of Short Term Fixed Deposit
- There is the flexibility to choose the maturity tenure which ranges from 7 days to 12 months.
- Money can be deposited only once in a short-term deposit.
- On the maturity of the short-term deposit, you have an option to renew the fixed deposit.
- The income earned from the short-term fixed deposit is taxable under the Income Tax Act, 1961.
- Banks offer a higher rate of return on such deposits.
- The premature withdrawal facility is offered by the banks but account holders will have to pay a penalty for the same. Though, there are some banks that do not charge any penalty for premature withdrawal.
- The minimum deposit varies from bank to bank, generally, the minimum amount is Rs 100. However, the amount may be less if the account holder is minor.
Advantages of short-term deposits
- Short-term fixed deposits are the best option if an individual wants transitory savings.
- These deposits are offered at a higher interest rate and provide greater liquidity, the amount can be easily converted into cash in case of an emergency.
- If there is a financial emergency for a person he/she can take a loan against their fixed deposit account. Most banks allow people to take a loan amount equivalent to 95% and they do not need collateral or documents.
- An account holder can have a nominee, who can be anyone from the family or relative.
- On premature withdrawal, you will be charged an interest rate that is 1% less than the applicable interest rate. It is a profitable option when compared to availing of a loan or credit from anyone else.
- Short-term fixed deposit is secured deposits as they are regulated by the government of India and the central bank.
- These funds can be used as margin money for non-fund-based services, it is money that is borrowed by investors to invest in stocks.
The interest rate for a 3-month fixed deposit
|The interest rate for 7 days- 90 days
|State Bank of India
|PNB Housing Finance
|ICICI Home Finance
|6.00% to 6.25%
|IDFC First Bank
|Bank of Baroda
|AU Small Finance Bank
|4.75% – 5.00%
|ESAF Small Finance Bank
|4.50% – 5.00%
|Standard Chartered Bank
|2.50% – 4.25%
|Karur Vysya Bank
|3.50% – 4.15%
|Dhan Laxmi Bank
|3.50% – 4.00%
How to open a short-term fixed deposit account
The procedure for every bank is different but these are the few things that most banks require:-
- Open a savings account in the bank you want to have a fixed deposit account
- Check the interest rates provided by the bank
- Read the terms and conditions carefully
- The account holder should be an Indian resident, and some banks offer fixed deposit accounts for NRI’s
- To open the account you need the following documents such as identity proof, passport size photos, and proof of address
Conclusion: Short-term fixed deposit is a good bet for people who want to earn high returns and also want their money secured. It is the best option for people who want to invest money for a shorter period of time. You can calculate the FD maturity amount using the FD calculator.