Unveiling The Path To Maximum Returns: Decoding Short-Term vs. Long-Term Fixed Deposits

Fixed deposit investments are popular among conservative investors due to the fixed income benefit and flexible tenure it offers. Investing in fixed deposits allows you to opt for a flexible maturity period ranging from 7 days to 10 years and depending on the financial institution the interest rates also differ. A short-term FD also allows you to earn better interest rates than a savings account and gives more liquidity, while long-term fixed deposits are less liable to liquidity but do offer tax advantages under section 80C if deposited for five years. In order to combat inflation, the RBI began a cycle of rate hikes in May 2022. As part of that cycle, repo rates climbed to 2.5% (250 basis points), which triggered banks to hike deposit rates to the tune of 9%. As a result, some banks, particularly small finance banks, are presently giving higher returns on short-term fixed deposits than they are on long-term ones. Hence amid the interest rate regime, investors should opt for short term FD or long term FD, let's find out the answer from industry experts.

Shruti Jain, CSO, Arihant Capital

When it comes to Fixed Deposits (FDs), choosing the right tenure is crucial for maximizing returns. Whether you should invest in a short-term or a long-term fixed deposit option will depend on a host of factors including what is your risk profile and what's your investment horizon.

• Short-Term FDs: These offer greater liquidity, allowing you to access funds sooner. Ideal if you have short-term financial goals or need flexibility with your funds.

• Long-Term FDs: While they restrict liquidity, long-term FDs tend to offer higher returns. They can be beneficial when you anticipate a future decline in interest rates, as they lock in the current rates for the FD tenure.

Given the current interest rate scenario, for investors who are looking to lock in interest rates, it might be worthwhile looking at the best-fixed deposit rate before banks bring them down. A long-term fixed deposit will ensure you have locked in an attractive interest rate and do not have to worry about falling interest rates. It especially is a prudent choice for risk-averse investors and senior citizens. If your old long-term fixed-income investment is yielding a low-interest rate, then it is the ideal time to liquidate it and reinvest the proceeds.

Another smart choice for fixed-income investors is to diversify your FD portfolio across different tenures to strike a balance between liquidity and higher returns.

Aashika Jain, Financial Expert and Editor, Forbes Advisor India

To maximize returns, a combination of short and long term fixed deposits usually works the best depending upon your age. For senior citizens who may find it difficult to keep a constant track of their investment, it's best to opt for long-term FDs that provide an average return of 7% to 8%. For short-term FDs, you can earn a stable return for a short-term investment of any tenure between 7 days to a year; this enables the investor to earn returns to the tune of up to 6% or almost double of your savings account.
Fixed deposits, on the whole, are considered among the safest ways to invest among popular risk-free investment schemes.

Nanavath Bhupal Naik, MD , Shares Bazaar

In investment alternatives, fixed deposits (FDs) have constantly been considered a reliable and easy road for individuals to increase their savings. The query often perplexes traders is whether to pick out Short-Term or Long-Term Fixed Deposits for max returns. Let's embark on an exploration of this enigma.

Short-term FDs, typically ranging from a few months to a year, provide the benefit of faster liquidity. They are perfect for people with instantaneous monetary desires or individuals searching for flexibility in their investments.

Alternatively, long-term FDs spanning several years showcase their strength through higher interest rates and compounding advantages. They cater to people with a long-term perspective, promoting disciplined saving behavior and making sizeable returns through the years.

Thus, in conclusion, the selection among short-term and long-term FDs needs to be aligned with one's monetary goals and risk tolerance. Buyers can strategically allocate their finances to short-term and long-term regular deposits by growing a balanced investment portfolio.

Satyen Kothari, the founder and CEO of Cube Wealth

Short-term fixed deposits typically offer lower interest rates compared to long-term fixed deposits. If you are looking for maximum returns, opting for longer tenures is generally more beneficial. Long-term fixed deposits allow your money to compound over time, resulting in higher overall returns. However, it's important to consider your financial goals and liquidity needs before making a decision.

In the current interest rate scenario, it is always advised to book FDs for the long term,as current rates are higher than the 5 year average.In that way, you book the rates for a longer period of time and protect yourself from rates reducing in the future.

Vinayak Magotra (Founding Member, Product at Centricity)

When choosing fixed deposits (FDs), consider your financial goals and risk tolerance. For short-term needs, opt for short-term FDs for quick access to funds and capital preservation, although interest rates may be lower. Long-term FDs, with tenures exceeding a year, offer higher potential returns for goals like retirement planning. They provide higher interest rates and benefit from compounding. However, long-term FDs lack liquidity due to penalties for premature withdrawals. To maximize returns, balance short-term and long-term FDs based on your objectives. Diversifying investments across different tenures provides liquidity, stability, and growth potential. Consulting a financial advisor helps optimize returns and manage risk effectively.