When it comes to financial planning, choosing the right investment option can make a big difference in achieving your financial goals. For these reasons, fixed deposits are the popular choice. You know what? You can watch your money grow steadily with predictable returns from your fixed deposit. They come with short-term and long-term options. But what are the advantages and which one should you choose? Instead of confusing yourself, continue to read this article to find out.
What are Short-Term and Long-Term FD?
Short-term deposits are investment accounts requiring a minimum investment of 7 days up to a maximum of 2 years. They allow you to deposit a specific amount of money for a short duration, enabling it to grow over time.
Long-term deposits are the type of investment where you can deposit your money for an extended duration ranging from 5 to 10 years.
Short Term vs. Long-Term FDs
Investing your money is about choosing the financial instrument and determining the duration you invest your funds. Short-term deposits offer minimal interest amounts compared to long-term fixed deposits.
However, they provide more flexibility and liquidity, which allows you to access your funds whenever needed. In the same way, long-term fixed deposits also offer higher liquidity and more gainful returns.
Advantages of Short-Term FD
Below are the most important advantages of short-term fixed deposits.
Liquidity
Because of the higher liquidity, short-term deposits will be the best choice for accessing your funds shortly. You can also break your short-term FD account without getting any severe penalties. This makes it an ideal choice for dealing with unexpected financial needs. You can easily check balance to monitor your investments.
Lowered Interest Rate Risk
With the short-term fixed deposits, you are less exposed to the interest fluctuations. If interest rates decline, your investments will not be locked for an external period. This allows you to reinvest with higher interest rates when the market grows.
Interest Rate Adaptability
They provide the benefit of being able to change your interest rates. If there are any rises in the interest rates, you can reinvest your funds in a new and higher interest rate after the maturity of your short-term fixed deposits.
Advantages of Long-Term FD
While short-term FDs have their own benefits, long-term benefits have more advantages.
Consistency and Predictability
Long-term FDs offer a consistent and predictable source of interest rates. You can benefit from this predictability if you search for a regular income stream or plan for a long-term financial goal.
Increasing Growth
The long-term FD allows your money to grow with the help of compounding. The interest amount you have earned from this is reinvested in your cash and increases growth over the period.
Increased Interest Rates
Compared to short-term FDs, long-term FDs offer higher interest rates. Thus resulting in higher interest rates over the period. This increase in interest rate helps you to grow your money effectively.
Wrapping It Up
Ultimately, the choice between long-term and short-term FDs varies depending on your needs and preferences. Short-term FD will be helpful for you if you need flexibility and access to your money in a short period. You can also check transaction history to manage and review your investments. Long-term FDs will suit you if you want to grow your wealth over time, are looking for a steady income, or are planning your retirement. Choose wisely and enjoy the utmost benefit of FD it offers.