Short Term FD

A short term FD is a popular investment option for short duration financial goals. While long term fixed deposits help build wealth with stability, short term fixed deposits help investors accumulate funds which they require within 1 year. Depositors often prefer short term fixed deposit investments to earn a higher interest rate from their savings accounts.

Park your surplus cash in a high-yield short-term FD and get attractive returns in a short time. From public sector banks and private banks to small finance banks and NBFCs, you’ll get a lot of options to choose from. Book your short-term fixed deposit now with the Stable Money App!

What Is Short Term FD?

A short term fixed deposit offered by banks and NBFCs enables investors to earn higher interest rates than savings accounts by investing in secured financial instruments for a short period. Usually, the tenure of short term fixed deposits ranges between 7 days and 1 year.

Depositors can withdraw their funds before maturity in case of emergencies. However, banks levy a penalty on the effective interest rate in case of premature withdrawal of short term fixed deposits.

Components of a Short Term FD

The following are the components of short term FDs:

Components	Features
Interest Rates of Short Term FD	The interest rate on these fixed deposits is relatively lower. However, a longer period of deposit helps investors earn a higher interest rate. For instance, the interest rate for 12 months is higher than the interest rate for 15 days.
Minimum Investment Amount	The lowest deposit amount in short term fixed deposits varies between banks.
Investment Tenure	The tenure of investment for a short term FD ranges between 7 days to 12 months.
Renewal Facility	You can renew your FD after maturity or opt for auto-renewal.
Taxability of Interest Income	The interest income from short-term fixed deposits is subject to taxation based on the depositor's tax slab rates.
Premature Withdrawal Facility	Banks allow premature withdrawal of short term fixed deposits; however, a penalty applies on the effective interest rate for that tenure.
Nomination Option	You can nominate a beneficiary for your short term fixed deposits.

Benefits of Short Term Fixed Deposits

Here are the benefits of short term fixed deposits:

You can seamlessly liquidate your short term fixed deposits for your urgent or recurring needs. However, premature withdrawal attracts a penalty levied by the concerned bank on the effective interest rate.
As an investor, you can choose a tenure that best suits your financial goal.
You can reinvest the maturity amount (principal + interest) to diversify your portfolio or grow your investment corpus.
As an investor, you can avail loan facilities against your fixed deposit. However, the amount sanctioned as a loan varies based on the terms and conditions of different banks.
Fixed deposits offer higher interest rates than savings accounts for the same tenure, helping you grow your emergency funds. Senior citizens can get around 0.5% additional interest rates over regular depositors.

Short Term FD Interest Rates Across Prominent Banks

Here are the interest rates (for principal below ₹3 Crore) of a few best short term fixed deposits in India across prominent banks:

Bank Name	Tenure	Interest Rate for Non-senior Citizens	Interest Rate for Senior Citizens
HDFC Bank	7 days to 1 year	3.00% to 6.60% p.a.	3.50% to 7.10% p.a.
ICICI Bank	7 days to 1 year	3.00% to 6.70% p.a.	3.50% to 7.20% p.a.
Axis Bank	7 days to 1 year	3.00% to 6.70% p.a.	3.50% to 7.20% p.a.
IDFC Bank	7 days to 1 year	3.00% to 6.50% p.a.	3.50% to 7.00% p.a.
Kotak Mahindra Bank	7 days to 1 year	2.75% to 6.50% p.a.	3.25% to 7.00% p.a.
State Bank of India	7 days to 1 year	3.50% to 6.80% p.a.	4.00% to 7.30% p.a.
Punjab National Bank	7 days to 1 year	3.50% to 6.80% p.a.	4.00% to 7.30% p.a. (senior citizens) and 4.30% to 7.60% p.a. (super-senior citizens)

How to Open a Short Term Fixed Deposit?

You can open a short term fixed deposit online or offline. To open a short term fixed deposit offline, you need to visit a bank branch wherein your funds are deducted from your savings account. Most banks require that you open a savings account with them first if you are not an existing customer.

However, for a hassle-free short term fixed deposit opening, you can consider using the online mode. You can choose a platform like Stable Money that offers online fixed deposit openings. Alternatively, you can visit your bank's official website to open an online short term fixed deposit.

Ensure you have an identity proof such as your PAN card, an address proof such as passport, driving license, Aadhaar card or voter ID card. You might need passport-sized photographs to book a short term fixed deposit.

Eligibility Criteria to Open a Short Term Fixed Deposit

Here are the basic eligibility criteria to invest in a short term fixed deposit:

Resident Indian
You need to possess valid documents such as ID and address proof along with a PAN card.

Note that different banks may have different requirements.

TDS on Short Term Fixed Deposit Interest

The interest income from short term fixed deposits is subject to taxes based on the following rules:

The interest income from an FD is subject to taxes under the head 'income from other sources' as per the depositor's income slab.
If the total interest income in a financial year for a non-senior citizen exceeds ₹40,000, the bank deducts a 10% TDS (tax deducted at source) if they have submitted their PAN card details.
When a senior citizen depositor’s total interest earned in the fiscal year exceeds ₹50,000, a TDS of 10% applies with PAN card details submitted.
If the investor fails to provide PAN card details, the bank deducts a TDS of 20%.

As an investor, you can avoid TDS deduction by submitting Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to the bank at the beginning of a fiscal year. However, your income must be below the taxable limit.

When to Invest in a Short Term Fixed Deposit?

You can invest in a short term fixed deposit at any time to diversify your investment portfolio. Further, based on your financial goals, you can book a short term FD to build corpus that you might require within 1 year.

In other words, you can invest in a short term fixed deposit if you have any financial goals that are expected within a year. This may include saving money for an emergency fund or an investment portfolio, paying a down payment for a car, making an expensive purchase, etc.