Short-Term vs Long-Term Fixed Deposits: Making the Right Choice for Your Financial Goals

July 03, 2025

difference-between-cumulative-and-non-cumulative-fixed-deposits

In the last few years, there has been a spike in the number of investors investing in Fixed Deposits (FDs). This is primarily because of the rise in FD interest rates and the benefit of parking money in a safe and secure investment vehicle that's unaffected by market volatility. However, before investing in an FD, it's important to consider your financial goals so that you can make an informed investment decision. 

 

For example, if you are planning to buy a new car in the next 12 months, investing in short-term FD could be more apt. In this blog, we have explored the difference between short-term and long-term FDs and which one could be a better investment option for you.

 

Understanding Short-Term Fixed Deposits 

Short-term FDs are designed for shorter durations, typically ranging from 7 days to 1 year. These FDs offer higher interest rates compared to traditional Savings Accounts, making them an attractive option for individuals who have excess funds that they don't need immediately but anticipate expenditures in the near future.

 

However, if you're looking for high-interest Savings Accounts, consider Ujjivan Small Finance Bank. Additionally, you'll get to enjoy a feature-rich Debit Card, exceptional customer service and the convenience of Digital Banking.

 

Anyway, let's move to short-term FDs. For example, let's say you have ₹1 lakh that you don't require for a few months but plan to use it for a down payment on a car. In this case, parking your money in a short-term FD could be a wise decision. 

 

Exploring Long-Term Fixed Deposits 

On the other hand, long-term FDs have a longer tenure, ranging from 1 year to a maximum of 10 years. These FDs offer higher returns than both short-term FDs and savings accounts, making them an ideal choice for individuals with long-term financial goals. 

 

For instance, if you're saving for your child's higher education or planning for retirement, a long-term FD spanning 5 or 10 years can help you accumulate wealth over time while providing stability and security. Unlike equity-related instruments that carry more risk, long-term FDs offer a safer option for wealth accumulation. 

 

Now, let's dive deeper into the differences between short-term vs. long-term fixed deposits:

 

1. Tenure: Short-term FDs: 7 days to 1 year; Long-term FDs: 1 to 10 years. 

 

2. Interest Rates: Short-term FDs offer higher rates than Savings Accounts. However, the overall returns could be lower than long-term Fixed Deposits.

 

3. Taxation: Interest earned on both FDs are applicable for TDS (Tax Deducted at Source) on interest above ₹40,000 (₹50,000 for senior citizens).  Please note that this TDS exemption on FD interest is applicable for FY 2024-25 (till March 2025). For FY 2025-26, the current TDS exemption limit has been hiked to ₹50,000 for regular citizens and ₹1 lakh for senior citizens.Avoid TDS with Form 15G/H if your income is below the minimum taxable limit.

 

4. Safety: Investments up to ₹5 lakh (for both FDs) is insured under DICGC (Deposit Insurance and Credit Guarantee Corporation).

 

5. Liquidity: Short-term FDs offer better liquidity than long-term FDs. However, premature withdrawal may attract a certain penalty charge. Please note that this feature is only applicable for callable FDs. For non-callable FDs, early withdrawal is not allowed.

 

6. Purpose: Short-term FDs suit immediate goals like car purchases or vacations. Long-term FDs are ideal for goals like buying a house or retirement planning.

 

7. Opportunity Cost: Short-term FDs have lower opportunity costs as funds are reinvested sooner. Long-term FDs have higher opportunity costs due to extended investment period. 

 

8. Goal Alignment: Short-term FDs fit short-term needs; long-term FDs align with long-term financial goals. 

Final Thoughts

Choosing between short-term and long-term Fixed Deposits require careful consideration of your financial goals and liquidity needs. Short-term FDs are ideal for individuals with immediate financial requirements or those anticipating interest rate hikes in the near future. On the other hand, long-term FDs are better suited for long-term goals, providing stability, security, and wealth accumulation opportunities. 

 

Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.

 

Disclaimer:

The contents herein are only for informational purposes and generic in nature. The content does not amount to an offer, invitation or solicitation of any kind to buy or sell, and are not intended to create any legal rights or obligations. This information is subject to updation, completion, amendment and verification without notice. The contents herein are also subject to other product-specific terms and conditions, as well as any applicable third-party terms and conditions, for which Ujjivan Small Finance Bank assumes no responsibility or liability.

 

Nothing contained herein is intended to constitute financial, investment, legal, tax, or any other professional advice or opinion. Please obtain professional advice before making investment or any other decisions. Any investment decisions that may be made by the you shall be at your own sole discretion, independent analysis and evaluation of the risks involved. The use of any information set out in this document is entirely at the user’s own risk.  Ujjivan Small Finance Bank Limited makes no representation or warranty, express or implied, as to the accuracy and completeness for any information herein. The Bank disclaims any and all liability for any loss or damage (direct, indirect, consequential, or otherwise) incurred by you due to use of or due to investment, product application decisions made by you on the basis of the contents herein. While the information is prepared in good faith from sources deemed reliable (including public sources), the Bank disclaims any liability with respect to accuracy of information or any error or omission or any loss or damage incurred by anyone in reliance on the contents herein, in any manner whatsoever.

 

To know more about Ujjivan Small Finance Bank Products Visit:"https://www.ujjivansfb.in"

 

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FAQs

1. Which is better - short-term or long-term FD?

Short-term FDs are designed to meet short-term goals. They offer more liquidity, but the returns could be low. Long-term FDs offer higher returns, thanks to the power of compounding and are designed to meet long-term investment goals. However, liquidity options are lower compared to short-term FDs. Consider your investment goals before booking a short-term or long-term Fixed Deposit. 

2. What happens if I withdraw money prematurely from a long-term FD?

Premature withdrawals from long-term FDs may incur penalties on the interest and can affect your financial goals. Kindly note that Ujjivan SFB does not charge any penalty fee for withdrawals made after 6 months from the time of deposit. This facility is applicable only for callable FDs (FDs without any lock-in period).

3. Can I have multiple fixed deposits with different tenures?

Yes, you can create multiple fixed deposits with varying tenures based on your financial goals and liquidity requirements. This is called FD laddering strategy.

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