Short Term Fixed Deposit

A fixed deposit is an investment option provided by banks or non-banking financial companies to deposit money and earn a certain rate of interest. The advantage of depositing money in a fixed deposit account is that it will give you a higher rate of return than a normal savings account. The maturity term for an FD account ranges from 7 days to 10 years. A short term fixed deposit has a maturity term from 7 days to a maximum of 12 months. Fixed deposit interest rates vary from bank to bank and this will fluctuate and may be also revised.

Given below are the interest rates offered on short-term deposits by top banks:

*The tenure taken is less than 365 days and the deposit value is less than Rs.1 crore

Features of short term fixed deposit  

• The maturity term of a short term fixed deposit ranges from 7 days to less than 12 months.
• You can deposit money in such a term deposit only once.
• You can opt to renew the short term fixed deposit account when it matures.
• The tax on the funds in the account are deducted as per the Income Tax Act, 1961.
• The rate of return on a time deposit account is usually high.
• Money can be withdrawn from an FD account before maturity but only after paying a fine. However, there are some banks which offer no penalty on withdrawing money before maturity.
• The minimum amount that you can invest in a short term deposit account varies from bank to bank. It is generally around Rs.10000. For minors, the starting amount is brought down by the banks.

Advantages of short term deposits

• It is the ideal option if you want to have transitory savings.
• It provides greater liquidity with high rate of return.
• A major advantage of such a fixed deposit is that it allows you to take a loan amount equivalent to 95% of the funds in your account without requiring a guarantor or any paperwork.
• There is a provision for nomination when you open a term deposit account.
• If you withdraw money before your term on the account ends, you will be charged an interest rate that is 1% less than the applicable rate.
• The government considers funds in the short term fixed deposit account as security.
• The fund in short term deposits can also be used as margin money for non-fund based services.

Requirements for opening a short term fixed deposit account

To open this type fixed deposit account, the requirements vary bank to bank. Most banks ask you to open a savings account along with the short term fixed deposit account. This removes the hassle of collecting the interest amount in person and it can be directly transferred to your savings account. Also the account holder should be a resident Indian although some banks offer Non-Resident Indians (NRIs) the option to open a short term fixed deposit account as well. To open fixed deposit account you would need an identity proof, passport size photos and proof of address.