Individuals should ideally invest their hard-earned savings smartly, especially for those instruments in which they need to choose a tenure or lock-in period. While there is no lock-in period for a fixed deposit, it will lead to a certain penalty if they withdraw the deposit prematurely. An ideal tenure of fixed deposit would be an investment period that can help depositors rule out chances of premature withdrawal.
Factors to consider while choosing fixed deposit tenure
Here are certain aspects that individuals should keep in mind while choosing the tenure for a fixed deposit:
- Investment horizon
The more time depositors keep their money in the fixed deposit, the higher the profit they book. This is because of the power of compound interest rates. However, it may not be ideal to keep their money for a long or short period without having a particular plan behind the decision. They need to choose a tenure matching the investment horizon so that they can avoid the necessity to withdraw their aggregated funds before time.
- Current interest rate
The FD rates are not the same for all tenures. Usually, it becomes higher with the increase in the maturity period. Still, there may be certain succeeding tenures in which the interest rate remains the same, as mentioned in the table below:
| Tenure (months) | FD rates for senior citizen customers | FD rates for senior non-citizen customers |
| 12, 13 and 14 | 7.65% p.a. | 7.40% p.a. |
| 15, 16, 17, 18, 19, 20, 21, 22 and 23 | 7.75% p.a. | 7.50% p.a. |
- Objectives for deposit
Generally, the primary goal of fixed deposit investment is to grow passive savings with a stable and relatively high-interest rate. Apart from this, their objectives of depositing can be to diversify their portfolio or to build a fund for a future date when they will require the aggregated amount to make a large-ticket expense.
For example, they may want to build a corpus for their child’s education or son/daughter’s wedding. In that case, the tenure must allow them to withdraw their fixed deposit maturity value before making any planned large-ticket spending.
Individuals should, therefore, check whether the tenure they choose will help them grow their deposits at higher rates. However, it will be unwise if they do not consider the factors of time horizon and investment purpose altogether while determining the tenure.
- Special tenure
Some financial institutions like Bajaj Finance extend special tenure at which the interest rate for fixed deposit remains considerably higher compared to the regular tenure. So, if the special tenure is within their investment horizon, they can plan for booking their FD for that period.
Check out how this special tenure can benefit investors:
| Tenure (months) | FD rates for senior citizen customers | Maturity amount of Rs.12 lakh |
| 44* | 8.60% p.a. | Rs.16,23,892 |
| 45 | 8.30% p.a. | Rs.16,18,221 |
Laddering strategy to help with choosing FD maturity
Individuals can also apply the laddering strategy if they have trouble choosing the exact maturity period for the fixed deposit. Using this strategy, they can grow a high amount of corpus that they can withdraw at regular intervals.
According to the laddering strategy, individuals need to purchase multiple fixed deposits for a series of different tenures. Since all the FD do not mature on a single date, they can get the aggregated amount of each FD over time.
For example, Sachin books 5 FD of Rs.10,000 each for the maturity period of 1, 2, 3, 4, and 5 years. As a result, he can withdraw the amount right from the 1st year. If he thinks that he does not require the amount at that time, he can re-book the FD for a maturity period of 5 years. Thus, he can continue this cycle of FD till he needs to use the maturity amount.
Invest in SDP to enjoy monthly earning
Individuals can also invest their money in Systematic Deposit Plans (SDPs). The SDP is a strategic investment option for fixed deposits in which individuals require to invest a fixed amount of money for up to a period of 12-60 months. After the maturity, they will get their deposited sum of each FD and the interest earned on it monthly as per the terms of SDP. They can also withdraw the total aggregated value of all their deposit at once.
Fixed deposit enables individuals to grow their deposited amount at a compound interest rate, which remains stable. They can know the exact amount they will receive after the tenure completes. Due to fixed earnings, they can also make financial planning to utilize the amount.
Moneycontrol Journalists are not involved in creation of this article.
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