How to determine if long-term FDs are favourable?


Fixed Deposits are one of the most sought after investment avenues. There are various Non-Banking Financial Companies (NBFCs) providing the service of fixed deposits. Fixed deposit services that are provided differ from one financial institution to other. There are banks and other companies which are providing these services as well. However, it is important to know that the rate of interest being offered by the NBFCs makes them one of the most favourable options.

When investing in a fixed deposit, there are three things that you need to consider – one of which is the amount that is to be deposited. The other two being the tenure of the fixed deposit and the rate of interest being offered. Fixed deposits work in a simple way, the higher the amount, the more will be the interest that you will earn. However, that is not the case with every financial institution as some may charge the same rate, be it short-term or long-term.

The fixed deposit services offered by the Non-Banking Financial Companies (NBFCs) are better than the other lenders. They provide a fixed deposit for a period of 1-5 years. Not just that, even the rate of interest by these institutions are better than that of the other lenders. They offer more than 8% interest rate as compared to 6-7% being offered by the banks.

This brings us to an important point, the tenure of a fixed deposit. What is the ideal tenure for a fixed deposit? Are long-term FDs more beneficial than the short-term ones? These are few questions that we will find answers by the end of this blog. Firstly, it is important to know that FDs are a crucial component in an investor’s’ portfolio. Many investors rely on FDs for safe and steady returns. However, it is essential to know that single-minded focus on FDs does not turn out to be too fruitful.

The tenure of the fixed deposit and the income though it is completely dependent upon the rate of interest. Here are several things that you need to know about interest rate cycle:

Interest rates: When talking about interest rates with regards to long-term fixed deposits, it is essential to know that the interest rates are similar for both the tenures. So be it a fixed deposit for 1 year or 5 years, the rate of interest offered will be the same.

Tenure provision: Majority of the banks provide a fixed deposit for a period of 1-3 years. However, there are certain highly rated Non-Banking Financial Companies (NBFCs) which provide tenure for up to 5 years.

Lock-in rates: One of the most prominent features of fixed deposit is that the rates are fixed. Thus, if the rates decline in the future, you will still earn on the basis of predetermined rate.

These are the few points that shed some light on the tenure of fixed deposits being offered by the financial institutions. Know that investing in a long term is beneficial as there would be surety of income. Moreover, if the interest rates fall further, your interest earnings would not be affected by it.

Apart from these tenure-related points, it is essential that you do your homework regarding the rate of interest being offered. You can refer the chart of the financial institution and understand about which scheme offers you the highest rate of interest on FD. A little forecasting based on your research will be pretty beneficial.

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