How to choose the right tenure for your fixed deposit

Choosing the Right FD Tenure to Maximise Returns

What is a Fixed Deposit?

A fixed deposit is a financial instrument offered by banks. When you invest a lump sum for a set period, it yields returns at a fixed interest rate. FDs are popular for their safety, stability, and guaranteed returns. For those looking to grow their savings without market risks, an FD is a great option.

How to Choose the Right Tenure?

Before selecting an FD tenure, assess your financial goals and liquidity needs. Is the FD for an upcoming commitment or long-term planning like retirement?

Short-term FDs (7 days to 1 year): Ideal for short-term goals or emergencies. They offer better returns than savings accounts with flexible lock-in periods.
Medium-term FDs (1 to 3 years): Great for mid-term goals like buying a vehicle or planning a holiday. Balanced returns with manageable lock-in.
Long-term FDs (3+ years): Best for goals like education, marriage, or retirement. Suitable for wealth accumulation over time.

How Tenure Affects the Rate of Returns

FD interest rates generally increase with tenure, though this isn't always the case. Some banks offer special-term deposits with better returns.

Example: Karur Vysya Bank's 760-day FD offers up to 8.10% for senior citizens and 7.60% for the general public and NRIs—higher than some long-term FDs.

Pro Tip: Laddering Strategy

To maximise returns and maintain liquidity, consider the laddering strategy—dividing your FDs across multiple tenures. This ensures regular access to funds and better rate opportunities without locking all funds at once.

04 March 2025

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