A fixed deposit is one of the safest and most reliable methods of saving money that provides a consistent return regardless of the market conditions. There has been a decline in FD interest rates 2022, but the ongoing inflationary trends suggest that deposit rates will rise significantly shortly. Rate hikes are expect to continue, and the repo rate may rise by 75 to 100 basis points. As a result, FD interest rates 2022 will likely reach around 7% for longer tenors soon.
What is the Best Way to View Fixed Deposits?
A fixed deposit could be a good choice if you are a conservative investor and need money within the next couple of months. FDs are an excellent way to park your emergency corpus in 1 year FD , 5-year, or 10-year FD scheme, until you need it in the future, say within two to three years. No doubt fixed deposits provide the highest level of security for your funds, given the current macroeconomic uncertainty and geopolitical tensions affecting the equity market. As a rule, senior citizens have the least appetite for risk and are more incline to keep their money in bank deposits and other similar secure investments. Fixed deposits are the most trust way to save and get assured returns when saving money since they offer higher FD interest rates 2022.
Short-term and long-term FD interest rates
Generally, the higher the FD interest rates 2022 on a fixed deposit, the longer the investment horizon. Regarding tenor, fixed deposits are available for a minimum of 7 days up to 10 years. In the case of short-term deposits, the tenor of the deposit ranges from seven days to 12 months, while long-term deposits are lock in for two years or more. Despite this, investors can earn as little as 2.5 percent interest on short-term deposits, which can go up to a maximum of 5 per cent, while you can earn as much as 6.5 percent on long-term fixed deposits, which are currently able to fetch you as high as 10%. As a result of compounding, your yield increases over time. Short-term FDs, on the other hand, offer you the benefit of compounding interest, while long-term FDs, on the other hand, provide you with the benefit of simple interest.
Short Term Fixed Deposit
In comparison with long-term FDs, short-term FDs have significantly shorter lock-in periods. Short-term fixed-rate deposits are the best option to ensure their funds are safe and they need money within 12 months. A short-term tenor is ideal for such investors since premature withdrawals from FDs are subject to a penalty of 0.5 per cent to one per cent, so a short-term tenor is preferable to them. Furthermore, short-term FDs can benefit investors close to attaining their financial goals after redeeming equity-orient instruments. Investing in a short-term fixed deposit will be one of the best ways to save your funds in the short term since there are no risks involve and the liquidity is high. Even though short tenors will not beat inflation post-tax, the quantum of funds will not erode, and investors can use the funds for future needs. The tax rate on the interest earn from FDs is based on the investor’s income tax slab, so it is important to keep this in mind when choosing an FD account.
Long Term Fixed Deposit
Those who are fairly conservative and do not require funds soon may find that long-term FDs are a good option, as well as those who believe that equity-relate investments are unlikely to perform well for a medium-term horizon, say 2-5 years. In addition to getting impressive FD interest rates, compounding will also benefit them at the end of the loan tenure, giving them a greater value.
It is important to remember that fixed deposits may not be a good product for an investor with an investment horizon of more than five years since inflation and taxes may outweigh the returns on a fixed deposit.