Fixed Deposit has always been a popular financial instrument for a high return on your investment.
The features of Fixed Deposit make room for a highly convenient scheme to grow your finances without any hassles. Some of the Fixed Deposit benefits include high rates of interest, low risk factor, insurance against your principal amount, and an easy-to-obtain Personal Loan against the principal.
Fixed Deposit schemes also offer flexible tenure periods that could easily last up to over a decade.
The Minimum and Maximum Fixed Deposit Tenure Period
Most banks and NBFCs offer flexible maturity periods on Fixed Deposits. Depending on your financial stability, monthly income, and budget, and also taking into account long-term financial goals, you can choose a convenient tenure for your Fixed Deposits.
- Minimum tenure period: 15 days
- Maximum tenure period: 20 years
These tenure periods could vary depending on the financial institution of your choice and also their Fixed Deposit plans.
Long-term Fixed Deposits
If you intend to invest in a long-term Fixed Deposit that lasts over a decade, you need to gear for instances of varying rates of interest and, in turn, risks. When you deposit an amount for a long tenure period, it is quite natural to lock the interest rates on the principal.
For instance, let’s say you have invested in a Fixed Deposit this March for a tenure period of 20 years at an interest rate of 8.5%. Five years down the lane, your financial institution offers a rate of interest of 10.5% to new Fixed Deposits. This means that you’re at a loss of 2% interest, and this is only a quarter of your tenure period.
There are occasions where the interest rates could drop too. Let’s say the rate drops to 6%. Then locking in your interest rate at the beginning of your tenure would be of great help on your investment.
Since these situations are hard to predict and the fluctuations in the interest rates are certain, you must be prepared to face risks throughout the tenure period.
Taxes and Long-Term Deposits
Whether it’s a short-term investment or a long-term one, you will be required to make tax payments on your Fixed Deposits. And if it’s a long-term investment, the tax amount can sum up to quite a bit, over the long tenure period. You can apply for a tax deduction to help save money on your Fixed Deposits.
If your income does not exceed the Income Tax Limit, you need to submit forms 15G and 15H to your bank or NBFC. Another option to save on your TDS would be to divide the Fixed Deposit across two names, preferably with your spouse. In cases where your spouse is also employed, it’s best to avoid any hassle and pay the required amount as tax.
When your interest exceeds Rs. 10,000, the bank or NBFC deducts a mandatory amount on your investment as tax. To avoid tax deductions, you can split the principal across several accounts and choose smaller maturity periods.
While both short-term and long-term deposits have their own pros and cons, you are the best judge to pick a Fixed Deposit that best suits your financial situation and needs. Both the extremes—too short tenure periods and too long maturity periods—are not as rewarding as you would expect.
So choose a maturity period that lasts anywhere between one to five years and get your tax benefits and fixed rates of interest. You can always reinvest the amount under a new tenure.