Short Term FD

Banks and NBFCs offer short term fixed deposits as an investment tool to deposit a certain amount for a maturity period of less than one year. A predetermined fixed interest is paid on the deposit. You can choose to receive regular periodic interest or cumulative interest payments at the end of tenure. The deposit amount is repaid on completion of the maturity period. The deposit period (term) can be anywhere between 7 days to 12 months. The short-term FD interest rates offered vary from bank to bank.

The components of short-term Fixed Deposits are as follows:

• Tenure
  The tenor of a short-term FD ranges from 7 days to 12 months.
• Short-Term FD Interest Rate
  The interest rates offered for a short-term FD varies from bank to bank. However, the rate of interest is lower than the long-term FDs but is typically more than the Savings bank account. Additionally, senior citizens are offered an additional interest above the base rate.
• Investment Amount
  The investment amount for a short-term FD differs from bank to bank. For example, you can open an FD with as low as Rs. 1000 in a public sector bank, but for a private sector bank, it is Rs. 5000.

The features of a short-term FD are as follows:

• Tax: The interest income from short-term FDs is taxed per the provisions of the Income Tax Act 1961 provisions. A TDS of 10% is applicable on interest for PAN holders, and for non-PAN holders, it is 20%.
• Loans: Short Term FDs can be pledged as collateral while availing loans. You can take a loan of value amounting up to 95% of the FD value. However, this may vary from bank to bank.
• Renewal: You can withdraw your capital from the FD or choose to renew it at maturity. FDs usually come with an option of auto-renewal.
• Maturity period: You can invest in a short-term FD for a period of 7 days to 12 months.
• Interest payments: The FD interest rate usually increases with an increase in the tenure on account of holding period risk. The frequency of interest payment can usually be chosen and can be monthly, quarterly, half-yearly, or yearly. The rates vary from bank to bank, and you can choose to invest in the short-term FD that offers a higher risk-adjusted return. The interest rates are slightly higher for senior citizens.
• Premature withdrawal: Banks usually charge a penalty on premature withdrawal from an FD. The amount of penalty charged varies from bank to bank. Some banks might not charge any penalty on an early withdrawal. 
• Minimum and Maximum Amount: The minimum amount for opening an FD account is Rs.1,000 in most banks in India. However, this may depend on the institution chosen while making the investment. Some banks have a different minimum amount requirement for FDs booked electronically. There is no upper limit on the amount you can deposit in an FD.

The following table shows short-term FD interest rates offered by some of the leading banks in India:

**Disclaimer: Interest rates are subject to change per the bank’s policy and the prevalent repo rate.

You can choose to invest in short term FDs for the following benefits they offer:

• Short-term savings: If you want to invest securely and save for short time horizons – e.g., to buy a vehicle, etc.,  short-term FDs are ideal.
• Very Secure: Short-term FDs are largely unaffected by market fluctuations. The return on them is assured by the bank.
• Avail loans: Short-term FDs can be used as collateral to avail loans of up to 95% of their value. There is no need for a guarantor if you use the FD as collateral.
• Nomination facility: There is an option to nominate beneficiaries for the FD investment.
• Emergency Withdrawal: The investment in an FD can be withdrawn before maturity if the needed. However, a small penalty is charged for an early withdrawal.
• Liquidity: The term of less than one year makes your funds  liquid, and you can re-evaluate your investment options at the end of that period.

Any Indian resident is eligible to invest in a short term FD. Some banks offer this facility to NRIs as well. It is also possible for minors to invest in a short term FD with their legal guardians as custodians. Hindu Undivided Families (HUFs) can also invest in short-term FDs.

However, many banks usually ask you to have a savings account with them, so that it is easy for them to credit your interest payments to your account.

The process to open a short-term FD account can differ among various banks. Many banks typically require individuals to open a savings account and a short-term fixed deposit account. This option can streamline receiving interest, as the accrued amount can be directly transferred to your savings account.

Additionally, it's important to note that the eligibility criteria for account holders may vary. Generally, banks make it mandatory for the account holder to be a resident Indian. However, some banks may extend the option for Non-Resident Indians to open a short-term fixed deposit account.

To initiate the process of opening a fixed deposit, you must submit essential documents such as identity proof, passport-sized photographs, and address proof.

Fixed deposits have traditionally enjoyed a lot of trust among Indians. With their assured fixed returns and ease of availability, fixed deposits remain the first choice for short-term investment. Furthermore, the hassle-free process is another factor why people choose to invest in short term FDs. You must evaluate all available instruments and choose the one that meets your needs.