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Long-Term Fixed Deposits (FDs)

Updated on: 09 Jan 2024 | 10 mins read

Fixed deposits are one of the most popular low-risk investment avenues. They offer assured returns, and almost every bank, a few selected licensed non-banking financial companies (NBFC), and post offices provide this facility.

If you have long-term financial goals, a low-risk appetite and aim for higher interest than a savings bank account, then a long-term fixed deposit is an ideal investment option.

What is a Long-Term Fixed Deposit (FD)?

A long-term fixed deposit (FD) is a type of deposit account in which you invest for a period ranging from 5 years to 10 years or more. Banks, NBFCs, and post offices offer higher interest rates on long-term FDs than short-term FDs.

Investing in a long-term FD account involves minimal risks and offers assured returns. They are often perceived as one of the most ideal means to achieve long-term financial goals.

Best Long-Term FD Interest Rates

In addition to being one of the safest investment alternatives, long-term FDs promise higher risk-adjusted returns than short-term fixed deposits. This compensates the investors for the relatively high holding period risk borne – on account of longer tenure.

The following table summarises the interest rates on long-term fixed deposits by major financial institutions:

 

Financial InstitutionRegular FD rate (on 10-year deposits)Senior Citizen FD rate (on 10-year deposits)
SBI5.5%6.3%
Post Office6.7%7.4%
HDFC Bank5.75%6.5%
ICICI Bank5.75%5.75%
Axis Bank5.75%6.5%
Bajaj Finance7.4%7.65%

Disclaimer: Interest rates are subject to change in accordance with the prevailing repo rate and the bank’s policy.

 

The rates mentioned in the table are as per the update received on August 8, 2022. The offered fixed deposit rate is subject to variation due to numerous factors like the repo rate, the amount deposited, etc.

For instance, HDFC Bank offers a slightly higher interest rate for deposits over 2 crores.

The interest rate offered at the time of opening your fixed deposit account remains constant throughout the tenure of the deposit, i.e. the interest rate is fixed from the investment until withdrawal. The long-term deposit rates, as mentioned above, change from time to time, but the revised rates apply only to new accounts.

Before investing in a fixed deposit, investors must carefully assess the advantages and disadvantages. In this article, we will help you with the insights needed to make an informed decision.

Advantages of Long-Term Fixed Deposits

Below are some of the advantages of long-term FDs:

  • Long-term FDs are relatively safe investment alternatives with almost zero risk involved and assured returns. The correlation between the returns on a fixed deposit and market related volatility is practically non-existent as the rate of interest remains fixed throughout the investment horizon.
  • Banks, NBFCs, and post offices offer higher rates of interest in comparison to those offered by traditional savings accounts and even short term fixed deposit accounts.
  • You can claim tax deductions by investing in long-term FDs as per Section 80C of the Income Tax Act, 1961 (applicable only for tax-saver FDs with a tenure of 5 years).
  • Long-term FDs can be pledged as collateral for loans
    Long-term FDs can be used as a security deposit when applying for a credit card.
  • Overdraft facilities can be availed under long-term FDs.
  • Senior citizens can avail higher interest rates on their FDs than regular customers.

Disadvantages of Long-Term Fixed Deposits

The disadvantages of long-term FDs are as follows:

  • The lock-in period is very long for long-term FDs, usually five years or more. So, it will be difficult to acquire the investment if you need funds urgently for unanticipated events or emergencies. Financial institutions provide the facility of premature withdrawal, but penalty charges are usually applied.
  • Long-term FD interest rates are slightly lower in comparison to that offered by debt mutual funds. Debt mutual funds are viewed to carry comparable risk and hence they enjoy an edge over Long term FDs by offering higher risk  and hence, they enjoy an edge over Long-term FDs by offering higher risk-adjusted returns.
  • While investing in long-term FDs, many people do not think about the impact of inflation. It is important to note that the actual returns on a long-term fixed deposit reduce with inflation.

Steps to Apply for a Long-Term FD

There are two methods to apply for a long-term FD, online and offline. Let us have a look at both methods.

 

Online Method

To open an FD online, follow these steps:

  • Login using the net banking facility from the bank’s official website. You can also log in through the bank’s official app. The same applies to the chosen NBFC or post office.
  • Search for the “Open Fixed Deposit” tab.
  • Fill out the necessary details, including the investment amount, the tenure, and the nominee for your account.
  • Then transfer the investment amount and complete the application process.


Offline Method

To open an FD offline, follow these steps:

  • Visit the nearest branch of the bank, NBFC, or the post office in which you already have a savings account or wish to open an FD account.
  • Request an FD application form and complete all the necessary details, including the investment amount, the tenure, and the nominee for your account.
  • Submit the required documents –address proof, identity proof and any other document the institution deems necessary.
  • Submit the investment amount in cash or by cheque. If you already have a savings account, the amount will be transferred from the savings account to the FD account.
  • The application will be processed, and you will receive a fixed deposit certificate within a day or two.

Eligibility for Long-Term FD

The following are the eligibility criteria for opening an FD account:

  • Minors
  • Blind people
  • Illiterate people
  • Individuals that are Indian residents
  • Joint account by two or more people
  • Senior citizens
  • Religious & educational institutions
  • Companies
  • Partnership firms
  • Non-Resident Indians (NRIs
  • Sole proprietorship companies
  • Societies, trusts, clubs, associations, etc

How to earn more out of a long-term FD?

Investing your money in a long-term deposit can earn more interest because it keeps adding up over the years. Other ways might help you get even more money from long-term fixed deposits. Here are some ways:

  • Principal invested
  • Compounding frequency
  • Type of interest payout method

Final Words

A long-term fixed deposit is an excellent low-risk investment option. Financial institutions such as banks, NBFCs, and post offices offer you higher interest rates on long-term FDs than short-term FDs.

As you diversify your portfolio, you need relatively safe financial instruments that offer assured returns, enabling you to build a reliable corpus. Due consideration should, however, be given to your unique financial situation at the time of zeroing down on investment tenure.

FAQs

What are the eligibility criteria for long-term fixed deposits?

The eligibility criteria are different for each financial institution. In general, you should be a resident of India. Non-residents of India (NRIs) can also open long-term FDs by submitting the specified documents. If you are a minor (aged below 18 years), you can open the account under the guidance of your parents or legal guardians. Corporate firms, educational and religious institutions, clubs, trusts, associations, and sole proprietorship firms are also eligible to open a long-term FD account.

What is the minimum amount to be deposited for a long-term fixed deposit?

The minimum investment amount for a long-term FD is Rs. 1,000. This might, however, vary from one institution to another.

What factors should I consider while investing in long-term FDs?

If you are considering whether to opt for a long-term or short-term fixed deposit, it is a prerequisite to consider your unique financial needs and goals. Other equally essential parameters to be considered are the financial institution's reputation, interest rate, premature withdrawal policies, and benefits such as loans, overdrafts, and credit card facilities.

What are the documents required to open a long-term deposit?

Most banks, NBFCs, and post offices require you to be a KYC-verified customer. To ensure this the investor is expected to produce their Aadhar Card, Voter ID, passport, PAN Card or driving licence. Post KYC verification, the investor is officially eligible to initiate a fixed deposit.

Do long-term FDs offer higher interest than short-term ones?

Yes, the rates of interest for long-term FDs are higher than short-term FDs. For the post office, the rate of interest for short-term FDs is 5.5%, while for long-term FDs, the rate of interest is 6.7%.

Can I get more interest on company FDs than what is paid on bank FDs?

In most cases, NBFCs offer more FD returns than banks.

Can I avail tax benefits if I invest in Long-term FDs?

If you invest in 5-year tax-free FDs, you can avail of exemption under Section 80C of the Income Tax Act.

Where else can I apply for long-term FDs other than banks?

Apart from banks, Non-Banking Financial Companies (NBFCs) and other financial companies offer a wide range of fixed deposits, including long-term time deposits.

Do all banks offer long-term FDs?

All the banks provide fixed deposits with tenure ranging from over 5 years to 10 years. However, certain banks may offer deposits specifically for 6 years to 7 years. The availability varies from one bank to another.

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