8 Mins

Fixed deposit is one the most traditional forms of investments for people in India. It encourages savings and guarantees returns in the form of interest. There are different types of fixed deposit options available for individuals to choose from. This article has detailed short term fd and their features, benefits, and other short-term investment options. 

What is a Short Term Fixed Deposit FD?

A short term fixed deposit is a financial instrument provided by banks and NBFCs (Non-Banking Financial Companies). They encourage people to deposit money and earn a fixed interest rate. The benefit of depositing money in a fixed deposit is that it will give you a higher interest rate than the savings account. The tenure of the fixed deposit ranges from 7 days to 10 years. However, a short term fixed deposit has a maturity tenure of a minimum of 7 days to a maximum of 12 months. The short term fixed deposit interest rates vary from bank to bank and may also be revised anytime. 

Investors can withdraw their FD investment plans prematurely. However, most banks and financial institutions charge a penalty for the same. And the rules for premature withdrawal vary for different banks. Alternatively, investors can take a loan against a fixed deposit account. This will help them meet their liquidity requirements while continuing their FD investment. Banks offer loans such as home loan, personal loan and loan against property against a fixed deposit. Investors can use a loan EMI calculator to estimate their loan EMI. A Scripbox loan EMI calculator can be used as a personal loan EMI calculator, car loan EMI calculator and home loan EMI calculator.

Short Term FD Interest Rates 2021

The following table depicts some of the top banks short term interest rates – 

BankRegular FD Rates (per annum)Senior Citizen FD Rates(per annum)
HDFC Bank2.50% – 4.90%3.00% – 5.40%
ICICI Bank2.50% – 4.90%3.00% – 5.40%
Axis Bank2.50%  – 5.15%2.50% – 5.80%
Kotak Bank2.90% – 4.40%3.00% – 4.90%
SBI Bank2.90% – 4.40%3.40% – 4.90%
Bank of India3.25% – 4.75%3.75% – 5.25%
Canara Bank2.95% – 5.20%2.95% – 5.70%
Bank of Baroda2.80% – 4.90%3.30% – 5.40%

Features of a Short Term FD

The following are the features of short term FD.

Tenure

Short term fixed deposit tenure ranges from 7 days to less than 12 months. 

Renewal facility

One can opt to renew their fixed deposit account when it matures. Also, most of the banks provide auto-renewal facilities.

Minimum amount

The minimum deposit amount for investment in an FD account may vary for different banks. Generally, for most banks, the minimum deposit amount is Rs. 10,000. 

Interest rate

The interest rate on a short term FD is comparatively lower than other fixed deposit schemes like post office FD, time deposits etc. The longer the investment horizon, the higher will be the interest rate. 

Tax

The interest earned on a fixed deposit account is taxable. The tax rate depends on the individual income tax slab rates. 

Premature Withdrawal

Most of the banks allow the depositors for premature withdrawals from their FD accounts. However, the bank charges a penalty for withdrawing before maturity. The penalty may vary from bank to bank. 

Nomination Facility

The depositors can also nominate beneficiaries for their deposits. 

Benefits of Investing in a Short Term FD

The following are the benefits of investing in a short term deposit

  • This account is ideal for short term saving purposes like buying a new vehicle or buying a gift for a family member. 
  • The interest rates offered by short term FDs are stable and attractive. Thus, giving individuals a better return than their savings account.
  • Short term FDs allow depositors to take a loan against their account equivalent to 70- 95% of funds. Moreover, this does not require a guarantor. It may vary from bank to bank. 
  • It also gives a provision for nominating a beneficiary while opening a term deposits account. 
  • There is liquidity in the short term FD where the depositor can withdraw their money before maturity. However, early withdrawal comes with certain penalty charges. 
  • Investment in short term FDs is considered to be highly safe. Market fluctuations do not influence it. 

Other Short Term Investments Options

The short term FD is a safe option for investment as it offers a fixed interest rate. Other types of fixed deposits serve the purpose of short term investment. These options also help in accumulating money on a short term basis with the help of stable interest rates. The following are some of the other short term investment options – 

Recurring Fixed Deposit

A recurring deposit is where people can save small amounts regularly with monthly deposits for a predetermined period and earn interest on those deposits. Once the recurring deposit matures, the lump sum and interest is paid back. It is one of the most common modes of short term and long term investment. The tenure for recurring deposits ranges from 3 months and can go up to 10 years. Usually, premature withdrawals are not allowed for recurring deposits. One has to wait till the end of the maturity to receive the money or close the account prematurely. 

The rate of interest for recurring fixed deposits can range from 3.5% to 8.5%. The rate of interest for senior citizens RD accounts is slightly higher than the regular accounts. Most banks offer an additional rate of 0.25%-0.75% for senior citizens.

Sweep-In Fixed Deposit

The sweep-in fixed deposits allow investors to transfer their excess funds in their savings bank account to their FD account. Thus, this will enable them to earn higher returns. The tenure of the sweep-in fixed deposits ranges from one to five years, depending on the bank. Furthermore, this will enable investors to earn higher returns on their surplus money. Moreover, Investors can draw funds from the FD without any fees or penalties to meet their short term requirements. 

The rate of interest of the sweep in FD will be similar to any other normal fixed deposit and will depend on the term of FD. 

Post Office Term Deposits

Post office fixed deposit or Post office term deposit is the oldest and most preferred form of investment. It is a safe investment as the government of India backs them. This scheme is offered by post offices where the four tenures are available – 1,2,3, and 5 years. One can opt for one year tenure for short term investment. The higher the investment tenure, the higher is the interest rate offered. 

One can invest a minimum deposit amount of Rs.200 and after that in multiples of INR 200. The interest rates offered by post office FDs are sometimes higher than Bank FDs. One of the best benefits of post office term deposits is that they qualify for tax exemption under Section 80C of the Income Tax Act, 1961. 

Frequently Asked Questions

Which bank is best for short term FD?

All the banks offer short term fixed deposits with different tenures and interest rates. One can open a short term fixed deposit account based on your convenience. Also, individuals can compare which bank offers a competitive rate of interest to earn additional returns. Furthermore, they provide safety and security on the principal amount invested if a good bank is chosen. They help people in managing their financial goals and provide future security.

All the banks keep revising their short term FD rates based on the guidelines issued by RBI.  Therefore, one should look at all the parameters before choosing any bank to invest in.

Can FD be done in 3 months?

The tenure of a fixed deposit ranges from 7 days to 12 months. One can deposit in any fixed deposit only once. Therefore, one can choose the FD tenure as per their objectives. Furthermore, investors can opt to renew their short term FD  account when it matures. 

Is short term FD taxable?

The interest that one earns on their short term FD investment is taxable. The tax rate depends on the individual’s income tax slab rates. There is also a TDS (Tax Deducted at Source) of 10% if the interest income exceeds INR 40,0000. In the case of senior citizens, it is INR 50,000. Also, this rate is applicable only if the PAN details are submitted. Else, the TDS rate is 20%

To know whether the interest income one might earn from their short term FD is above or below the TDS threshold limit, they can use Scripbox’s FD Calculator available online. Also, they can use the Income Tax Calculator to estimate their tax liability. Scripbox’s Income Tax Calculator is available online and is free to use.