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How The Tenure Of Your FD Affects Its Interest Rate

mahindra-finance-author

by Mahindra Finance

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April 25, 2024

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3 mins read

Fixed Deposits (FDs) are a popular investment option among Indians due to their guaranteed returns and low risk. However, the interest rate for fixed deposits can vary depending on several factors. In this article, we will focus on one important factor that influences the interest rate of an FD – its tenure. By understanding how the tenure of an FD affects its interest rate, you can make better-informed decisions when it comes to investing your hard-earned money.

Understanding FD tenure

The tenure of an FD refers to the duration for which you invest your money in a fixed deposit. The tenure can vary from a few months to several years, depending on your financial goals and requirements. Generally, longer tenures fetch higher interest rates because banks use these funds for an extended period and can offer better returns.

Factors influencing FD interest rates

Apart from the tenure of an FD, several other factors influence the interest rates offered on fixed deposits. These factors include:

  1. Market conditions: The FD interest rates are affected by market conditions, including inflation and the prevailing lending rates in the economy.
  2. RBI policies: The RBI sets key policy rates that influence lending and borrowing rates for banks, which ultimately impact fixed deposit interest rates.
  3. Credit ratings of banks: Banks with higher credit ratings are less risky for investors.
  4. Liquidity needs: Banks may adjust their FD interest rates based on their liquidity requirements.
  5. Deposit amount: The amount you deposit in your fixed deposit can also affect the interest rate offered by banks. 

Consider these factors and stay updated with the latest changes to make informed investment decisions. Use an online fixed deposit interest rate calculator to find the interest rate of your FD.

Impact of FD tenure on interest rate

The FD tenure can impact your financial goals and the interest rate in various ways. Let's explore a few scenarios:

Scenario 1: Short-term financial goal

If you have a short-term financial goal, such as saving for a vacation or buying a new gadget, you may opt for a shorter tenure FD to ensure quick returns. 

Scenario 2: long-term financial goal

For long-term financial goals like retirement planning or buying a house, longer-tenure FDs can provide higher returns due to compounded interest over the years. Choose an FD with a longer tenure and compare interest rates offered by different banks.

Conclusion

In conclusion, the FD tenure determines its interest rate and affects your returns. Always go for fixed deposits with maximum tenure for higher interest rates and larger returns. Use a fixed deposit interest rate calculator to gauge how much you will earn from your FD.

To make informed decisions about fixed deposits and explore the best options for your specific needs, Mahindra Finance offers a range of fixed deposit schemes tailored to suit different durations and investment goals. Visit the website or speak to a representative to find out how Mahindra Finance can help you achieve your financial aspirations.

FAQs

Q: Can I withdraw my fixed deposit before the completion of its tenure?

A: Yes, you can prematurely withdraw your fixed deposit. However, banks may charge a penalty for early withdrawal.

Q: Is it better to invest in a long-term FD or multiple short-term FDs?

A: The choice between long-term and short-term FDs depends on your financial goals and liquidity needs. Long-term FDs offer higher interest rates, while short-term FDs provide quicker access to your funds.

Q: What is the minimum tenure of fixed deposit?

A: The minimum tenure of a fixed deposit is from seven days to 12 months.

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