Updated on: Sep 21st, 2023 | 10 mins read
Fixed deposits are one amongst the most popular low risk investment avenues. They offer assured returns, and almost every bank, select few licensed non-banking financial companies (NBFC), and post offices provide this facility.
If you have long-term financial goals, low risk appetite and aim for higher interest than that offered by a savings bank account, then a long-term fixed deposit is an ideal investment option for you.
A long-term fixed deposit (FD), a provision allied to an account created by you in which you invest for a period ranging from 5 years to 10 years or more. Banks, NBFCs, and post offices offer higher rates of interest on long-term FDs as compared to short-term FDs.
The investment you make in a long-term FD account involves minimal risks and offers assured returns. They are often perceived to be one of the most ideal means to achieve long-term financial goals.
In addition to being one of the safest investment alternatives, long term FDs promise higher risk adjusted returns in comparison to their counterpart – short term fixed deposits. This is to compensate the investors for the relatively high holding period risk borne – on account of longer tenure. In addition to being one of the safest investment alternatives, long term FDs promise higher risk adjusted returns in comparison to their counterpart – short term fixed deposits. This is to compensate 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 Institution||Regular FD rate (offered to those aged <60 years) on 10-year deposits||Senior Citizen FD rate (offered to those aged >=60 years) on 10-year deposits|
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. It is prudent to note that the offered fixed deposit rate is subject to variation on account of numerous factors like the repo rate, amount deposited etc.
For instance, HDFC Bank offers a slightly higher rate of interest for deposits amounting to over 2 crores.
The interest rate offered at the time of opening of your fixed deposit account, remains constant throughout the tenure of deposit i.e the interest rate is fixed from the onset to withdrawal. The long-term deposit rates as aforementioned change from time to time, but the revised rates are applicable only to new accounts.
It is a prerequisite for investors to weigh the advantages & disadvantages of subscribing to a fixed deposit offer extended by a financial institution. We attempt to empower you to do the same through the course of the remainder of this article.
Below are some of the advantages of long-term FDs:
There are two methods to apply for a long-term FD, online and offline. Let us have a look at both methods.
A long-term fixed deposit is a good low risk investment option. Financial institutions such as banks, NBFCs, and post offices offer you higher interest rates on long term FDs in comparison to short-term FDs.
As you diversify your portfolio, you need relatively safe financial instruments that offer assured returns capable of 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.
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 set of 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 thinking about whether to opt for a long term or short term fixed deposit, it is a prerequisite for you to consider your unique financial needs and goals. Other equally important parameters to be considered are – reputation of the financial institution, 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%.