Difference Between Short-Term and Long-Term Fixed Deposits is an important topic for investors who want to choose the right FD based on their financial goals and time horizon. Short-term FDs are suitable for parking surplus funds for a brief period, while long-term FDs help in earning relatively stable returns over several years. Understanding how they differ in terms of tenure, interest rates, liquidity, and tax impact can help you make a smarter investment decision.
In this blog, we’ll clearly explain the difference between short-term and long-term fixed deposits so you can select the option that best matches your needs.
Fixed deposits serve different purposes depending on your investment horizon. Short-term goals typically require funds within 12 months, whilst long-term goals span multiple years. The key lies in matching your FD tenure with your financial timeline.
Current market data shows that short-term FDs (7 days to 1 year) offer interest rates between 3.25% and 6.25%, whilst long-term FDs (1-10 years) provide 6.25% to 7.60%. This rate differential of 1-2% might seem small, but compounding makes it substantial over time.
Fixed deposits are among India’s most popular investment options, offering guaranteed returns with minimal risk. According to RBI data, Indians have invested over ₹140 lakh crore in bank fixed deposits as of 2023, showing our nation’s trust in this instrument.
When investing in a fixed deposit, one of the most critical decisions is choosing the right FD duration. Should you opt for a short-term deposit or lock your money for a longer period? Both have distinct advantages depending on your financial situation and goals.
A short-term FD is an investment option where you deposit money with a bank for a shorter period that ranges from 7 days to 12 months. It is ideal for those looking to earn interest on idle funds without locking them away for too long. You get assured returns, and the money can be withdrawn after the term ends or rolled over. It’s a safe and easy way to grow your savings in the short run. Short-term FDs are also a good choice for emergency funds or saving for near- future expenses without market risks. Short-term fixed deposits typically have tenures ranging from 7 days to one year. These deposits are optimal for individuals seeking quick returns and greater liquidity.
Short-term FD interest rates vary depending on the deposit tenure, even within short-term options. Short-term FD rates help you earn more from idle money while keeping your funds relatively accessible.
For Example, a 6-month FD may offer higher interest than a 30-day FD. In ICICI Bank, the Short Term FD rates start from 2.75% p.a. for general and 3.25% p.a. for senior citizens. These rates are fixed at the time of deposit and don’t change during the FD term.
| Tenure | Interest Rate | ₹1 Lakh Investment | Maturity Amount |
| 3 months | 4.5% | ₹1,125 | ₹1,01,125 |
| 6 months | 5.5% | ₹2,750 | ₹1,02,750 |
| 12 months | 6.25% | ₹6,250 | ₹1,06,250 |
This method is commonly used for short-term fixed deposits and loans where interest is not compounded.
For Example: You invest ₹3,00,000 at an interest rate of 5.5% per annum for 6 months (0.5 year).
Interest = Principal × Rate × Time ÷ 100
Where:
Interest = ₹3,00,000 × 5.5 × 0.5 ÷ 100 = ₹8,250
Your maturity amount becomes ₹3,08,250 before tax deductions.
The rate of interest is given in percentage (%), and percentage means “per 100.”
So when the rate is 5.5%, it actually means: 5.5 per 100
To convert this percentage into a usable number for calculation, we divide by 100.
Short-term FD options offer several advantages for specific financial situations:
Pro Tip: Consider laddering several short-term fixed deposits with different maturity dates to ensure regular cash flow while maintaining liquidity.
Consider these limitations before investing in short-term FDs:
A long-term FD is where your money is invested for a longer duration, say, ranging from 1 year to 10 years. It is ideal for those who want stable and assured returns over time. Long-term FDs help with financial planning for future needs like education, marriage, or retirement. You earn attractive interest rates, and the rate stays fixed throughout the deposit period. These FDs also discourage frequent withdrawals, making them good for long-term goals. Long-term FDs are safe, low-risk investments, especially suitable for conservative investors seeking steady income.
Long-term FD rates are higher than short-term rates because your money is locked in for longer period. Banks offer attractive interest rates from 6.5% p.a. to 7.1% p.a. for general and senior citizens, respectively. The rate is fixed at the time of opening the FD, which means your returns are protected from market changes. This makes long-term FDs a great choice for consistent income over time.
Unveil the key benefits of investing in long-term FDs:
Assess these potential downsides before committing to long-term FDs:
| Factors | Short-Term FDs | Long-Term FDs |
| Investment Period | Typically, 7 days to 1 year | Over 12 months to 10 years |
| Interest Rates | Generally lower compared to long-term FDs | Higher interest rates, providing better returns over time |
| Liquidity | Offers quick liquidity, allowing access to funds | Limited liquidity due to the extended lock-in period |
| Reinvestment Risk | Face the challenge of reinvesting at potentially lower rates | Locked into a fixed interest rate for the entire tenure |
| Wealth Accumulation | May not contribute significantly to long-term wealth growth | Provides an opportunity for substantial wealth accumulation |
| Opportunity Cost | Lower opportunity cost as funds can be reinvested sooner | Higher opportunity cost due to the extended lock-in period |
| Flexibility | Provides flexibility to respond to changing market conditions | Offers less flexibility and premature withdrawal may incur penalties |
| Goal Alignment | Suited for short-term financial goals and immediate needs | Aligned with long-term goals like education or retirement planning |
| Risk Tolerance | Lower risk due to shorter tenure and flexibility | Moderate risk due to a more extended lock-in and rate rigidity |
A short term fixed deposit typically ranges from 7 days to 12 months. These deposits provide quicker access to your funds while still earning better returns than a savings account. On the other hand, long-term fixed deposits have an FD lock-in period of more than one year, sometimes extending up to 10 years.
| FD Type | Typical Duration | Interest Rate Range | Liquidity | Best For |
| Short Term FD | 7 days to 1 year | 3.5% to 6.5% p.a. | High | Short-term goals, emergency funds |
| Long Term FD | Above 1 year to 10 years | 6% to 7.5% p.a. | Low | Long-term goals, wealth accumulation |
Maximise benefits by strategically balancing short-term and long-term FD investments:
Here are a couple of strategic approaches when you have to choose between the two FD options.
Instead of choosing exclusively between fixed deposit short-term or long-term options, consider the laddering approach:
This strategy combines the liquidity advantages of short-term FD with the higher returns of long-term options.
Fixed deposit interest is fully taxable under “Income from Other Sources.” Banks deduct TDS at 10% if annual interest exceeds ₹40,000 (₹50,000 for senior citizens).
For high earners, consider splitting large FDs across family members to optimise tax efficiency.
When deciding whether an FD long-term or short-term is right for you, analyse the current interest rate cycle:
Fixed deposits offer unique flexibility through loan facilities. You can borrow up to 90% of your FD value at just 1-2% above the deposit rate much cheaper than personal loans.
Calculation Example:
This feature makes FDs excellent for managing both short-term goals and long-term goals simultaneously. The loan against the FD facility provides quick access to funds without breaking your long-term investments.
Before choosing between fixed deposit short-term and long-term options, ask yourself:
When deciding between short-term and long-term fixed deposits, evaluate your immediate financial goals, liquidity requirements, and the broader market outlook. Short-term FDs cater to those seeking swift access to funds or looking to ride on fluctuating interest rates for better returns. Meanwhile, long-term FDs promise higher returns and stability, supporting plans like long-term investments or retirement savings.
For investors aiming to reap varied benefits, consider a diversified approach. By spreading your investments across both short-term and long-term FDs, you can enjoy the liquidity of one and the higher returns of the other, effectively guarding against market volatility.
| Factor | Short-Term FDs | Long-Term FDs |
| Best for | Emergency funds, immediate goals | Wealth creation, future planning |
| Interest rates | 3.25% – 6.25% | 6.25% – 7.60% |
| Liquidity | High | Moderate |
| Compounding benefit | Limited | Significant |
| Penalty risk | Low | Higher |
| Reinvestment risk | Higher | Lower |
The decision ultimately depends on your financial timeline and risk tolerance. Short-term goals require predictable access to funds, making lower-yielding but liquid FDs appropriate. Long-term goals can leverage higher rates and compounding for wealth accumulation.
The shortest period for a Fixed Deposit is 7 days. You can open an FD for 7 days and go up to 10 years, depending on your financial goals. A short-term period is suitable for people who want to park money for a very short time and still earn some interest safely.
Yes, short-term FD interest is taxable. The interest earned is added to your total income and taxed as per your income slab. If the yearly interest exceeds ₹50,000 (₹1,00,000 for senior citizens), TDS is deducted by the bank. You can save this by submitting Form 15G/15H if eligible.
Yes, you can open an FD for 1 month (30 days). It’s called a short-term FD and is ideal if you want to earn safe, fixed returns for a brief period.
The minimum amount to invest in a short-term FD is approx. ₹10,000 and for minors, it is approx. ₹2000. It is better to start with a good amount so that you can get high returns in the future.
No, Tax Saver FDs are not short-term. This FD has a 5-year lock-in period and cannot be withdrawn early. It offers income tax benefits under Section 80C (under the Old Tax regime) for up to ₹ 1.5 lakh per year. Short-term FDs, on the other hand, range from 7 days to less than 1 year and offer no tax exemptions under section 80C.
Yes, you can open a short-term FD for 3 months (90 days). It’s a popular option for those who want to park money for a short duration and earn better returns than other savings options. However, the returns may be a bit low for your FD.
It depends on your financial goal. Short-term FDs are better for quick savings and emergency funds, offering flexibility. Long-term FDs are ideal for future goals, giving higher returns over time. Choose short-term for liquidity and long-term for wealth growth. Both are safe, fixed-return investment options.
I’m a contributor at Finanjo, where I write about personal finance, banking, and everyday money topics in a clear and practical way. I simplify complex finance jargon into easy explanations and real-life insights, covering everything from bank accounts and deposits to government schemes and smart money decisions so readers can understand finance without the confusion.
Difference Between Short-Term and Long-Term Fixed Deposits is an important topic for investors who want to choose the right FD based on their financial goals and time horizon. Short-term FDs are suitable for parking surplus funds for a brief period, while long-term FDs help in earning relatively stable returns over several years. Understanding how they differ in terms of tenure, interest rates, liquidity, and tax impact can help you make a smarter investment decision.
In this blog, we’ll clearly explain the difference between short-term and long-term fixed deposits so you can select the option that best matches your needs.
Fixed deposits serve different purposes depending on your investment horizon. Short-term goals typically require funds within 12 months, whilst long-term goals span multiple years. The key lies in matching your FD tenure with your financial timeline.
Current market data shows that short-term FDs (7 days to 1 year) offer interest rates between 3.25% and 6.25%, whilst long-term FDs (1-10 years) provide 6.25% to 7.60%. This rate differential of 1-2% might seem small, but compounding makes it substantial over time.
Fixed deposits are among India’s most popular investment options, offering guaranteed returns with minimal risk. According to RBI data, Indians have invested over ₹140 lakh crore in bank fixed deposits as of 2023, showing our nation’s trust in this instrument.
When investing in a fixed deposit, one of the most critical decisions is choosing the right FD duration. Should you opt for a short-term deposit or lock your money for a longer period? Both have distinct advantages depending on your financial situation and goals.
A short-term FD is an investment option where you deposit money with a bank for a shorter period that ranges from 7 days to 12 months. It is ideal for those looking to earn interest on idle funds without locking them away for too long. You get assured returns, and the money can be withdrawn after the term ends or rolled over. It’s a safe and easy way to grow your savings in the short run. Short-term FDs are also a good choice for emergency funds or saving for near- future expenses without market risks. Short-term fixed deposits typically have tenures ranging from 7 days to one year. These deposits are optimal for individuals seeking quick returns and greater liquidity.
Short-term FD interest rates vary depending on the deposit tenure, even within short-term options. Short-term FD rates help you earn more from idle money while keeping your funds relatively accessible.
For Example, a 6-month FD may offer higher interest than a 30-day FD. In ICICI Bank, the Short Term FD rates start from 2.75% p.a. for general and 3.25% p.a. for senior citizens. These rates are fixed at the time of deposit and don’t change during the FD term.
| Tenure | Interest Rate | ₹1 Lakh Investment | Maturity Amount |
| 3 months | 4.5% | ₹1,125 | ₹1,01,125 |
| 6 months | 5.5% | ₹2,750 | ₹1,02,750 |
| 12 months | 6.25% | ₹6,250 | ₹1,06,250 |
This method is commonly used for short-term fixed deposits and loans where interest is not compounded.
For Example: You invest ₹3,00,000 at an interest rate of 5.5% per annum for 6 months (0.5 year).
Interest = Principal × Rate × Time ÷ 100
Where:
Interest = ₹3,00,000 × 5.5 × 0.5 ÷ 100 = ₹8,250
Your maturity amount becomes ₹3,08,250 before tax deductions.
The rate of interest is given in percentage (%), and percentage means “per 100.”
So when the rate is 5.5%, it actually means: 5.5 per 100
To convert this percentage into a usable number for calculation, we divide by 100.
Short-term FD options offer several advantages for specific financial situations:
Pro Tip: Consider laddering several short-term fixed deposits with different maturity dates to ensure regular cash flow while maintaining liquidity.
Consider these limitations before investing in short-term FDs:
A long-term FD is where your money is invested for a longer duration, say, ranging from 1 year to 10 years. It is ideal for those who want stable and assured returns over time. Long-term FDs help with financial planning for future needs like education, marriage, or retirement. You earn attractive interest rates, and the rate stays fixed throughout the deposit period. These FDs also discourage frequent withdrawals, making them good for long-term goals. Long-term FDs are safe, low-risk investments, especially suitable for conservative investors seeking steady income.
Long-term FD rates are higher than short-term rates because your money is locked in for longer period. Banks offer attractive interest rates from 6.5% p.a. to 7.1% p.a. for general and senior citizens, respectively. The rate is fixed at the time of opening the FD, which means your returns are protected from market changes. This makes long-term FDs a great choice for consistent income over time.
Unveil the key benefits of investing in long-term FDs:
Assess these potential downsides before committing to long-term FDs:
| Factors | Short-Term FDs | Long-Term FDs |
| Investment Period | Typically, 7 days to 1 year | Over 12 months to 10 years |
| Interest Rates | Generally lower compared to long-term FDs | Higher interest rates, providing better returns over time |
| Liquidity | Offers quick liquidity, allowing access to funds | Limited liquidity due to the extended lock-in period |
| Reinvestment Risk | Face the challenge of reinvesting at potentially lower rates | Locked into a fixed interest rate for the entire tenure |
| Wealth Accumulation | May not contribute significantly to long-term wealth growth | Provides an opportunity for substantial wealth accumulation |
| Opportunity Cost | Lower opportunity cost as funds can be reinvested sooner | Higher opportunity cost due to the extended lock-in period |
| Flexibility | Provides flexibility to respond to changing market conditions | Offers less flexibility and premature withdrawal may incur penalties |
| Goal Alignment | Suited for short-term financial goals and immediate needs | Aligned with long-term goals like education or retirement planning |
| Risk Tolerance | Lower risk due to shorter tenure and flexibility | Moderate risk due to a more extended lock-in and rate rigidity |
A short term fixed deposit typically ranges from 7 days to 12 months. These deposits provide quicker access to your funds while still earning better returns than a savings account. On the other hand, long-term fixed deposits have an FD lock-in period of more than one year, sometimes extending up to 10 years.
| FD Type | Typical Duration | Interest Rate Range | Liquidity | Best For |
| Short Term FD | 7 days to 1 year | 3.5% to 6.5% p.a. | High | Short-term goals, emergency funds |
| Long Term FD | Above 1 year to 10 years | 6% to 7.5% p.a. | Low | Long-term goals, wealth accumulation |
Maximise benefits by strategically balancing short-term and long-term FD investments:
Here are a couple of strategic approaches when you have to choose between the two FD options.
Instead of choosing exclusively between fixed deposit short-term or long-term options, consider the laddering approach:
This strategy combines the liquidity advantages of short-term FD with the higher returns of long-term options.
Fixed deposit interest is fully taxable under “Income from Other Sources.” Banks deduct TDS at 10% if annual interest exceeds ₹40,000 (₹50,000 for senior citizens).
For high earners, consider splitting large FDs across family members to optimise tax efficiency.
When deciding whether an FD long-term or short-term is right for you, analyse the current interest rate cycle:
Fixed deposits offer unique flexibility through loan facilities. You can borrow up to 90% of your FD value at just 1-2% above the deposit rate much cheaper than personal loans.
Calculation Example:
This feature makes FDs excellent for managing both short-term goals and long-term goals simultaneously. The loan against the FD facility provides quick access to funds without breaking your long-term investments.
Before choosing between fixed deposit short-term and long-term options, ask yourself:
When deciding between short-term and long-term fixed deposits, evaluate your immediate financial goals, liquidity requirements, and the broader market outlook. Short-term FDs cater to those seeking swift access to funds or looking to ride on fluctuating interest rates for better returns. Meanwhile, long-term FDs promise higher returns and stability, supporting plans like long-term investments or retirement savings.
For investors aiming to reap varied benefits, consider a diversified approach. By spreading your investments across both short-term and long-term FDs, you can enjoy the liquidity of one and the higher returns of the other, effectively guarding against market volatility.
| Factor | Short-Term FDs | Long-Term FDs |
| Best for | Emergency funds, immediate goals | Wealth creation, future planning |
| Interest rates | 3.25% – 6.25% | 6.25% – 7.60% |
| Liquidity | High | Moderate |
| Compounding benefit | Limited | Significant |
| Penalty risk | Low | Higher |
| Reinvestment risk | Higher | Lower |
The decision ultimately depends on your financial timeline and risk tolerance. Short-term goals require predictable access to funds, making lower-yielding but liquid FDs appropriate. Long-term goals can leverage higher rates and compounding for wealth accumulation.
The shortest period for a Fixed Deposit is 7 days. You can open an FD for 7 days and go up to 10 years, depending on your financial goals. A short-term period is suitable for people who want to park money for a very short time and still earn some interest safely.
Yes, short-term FD interest is taxable. The interest earned is added to your total income and taxed as per your income slab. If the yearly interest exceeds ₹50,000 (₹1,00,000 for senior citizens), TDS is deducted by the bank. You can save this by submitting Form 15G/15H if eligible.
Yes, you can open an FD for 1 month (30 days). It’s called a short-term FD and is ideal if you want to earn safe, fixed returns for a brief period.
The minimum amount to invest in a short-term FD is approx. ₹10,000 and for minors, it is approx. ₹2000. It is better to start with a good amount so that you can get high returns in the future.
No, Tax Saver FDs are not short-term. This FD has a 5-year lock-in period and cannot be withdrawn early. It offers income tax benefits under Section 80C (under the Old Tax regime) for up to ₹ 1.5 lakh per year. Short-term FDs, on the other hand, range from 7 days to less than 1 year and offer no tax exemptions under section 80C.
Yes, you can open a short-term FD for 3 months (90 days). It’s a popular option for those who want to park money for a short duration and earn better returns than other savings options. However, the returns may be a bit low for your FD.
It depends on your financial goal. Short-term FDs are better for quick savings and emergency funds, offering flexibility. Long-term FDs are ideal for future goals, giving higher returns over time. Choose short-term for liquidity and long-term for wealth growth. Both are safe, fixed-return investment options.
I’m a contributor at Finanjo, where I write about personal finance, banking, and everyday money topics in a clear and practical way. I simplify complex finance jargon into easy explanations and real-life insights, covering everything from bank accounts and deposits to government schemes and smart money decisions so readers can understand finance without the confusion.
