Short-term Fixed Deposits (FDs) have become a preferred investment choice for Indians seeking safe and relatively higher returns over a brief period. In 2025, these FDs typically offer tenures approximately ranging from 7 days to 1 year, providing a balance between liquidity and interest earnings.

What Are Short-Term Fixed Deposits

Short term FD are financial instruments where individuals deposit a lump sum amount with a bank or financial institution for a predetermined period, earning a fixed interest rate. Upon maturity, the principal along with the accrued interest is returned to the investor. These deposits are considered low-risk, making them attractive to conservative investors.

Interest Rates on Short-Term FDs in 2025

As of July 2025, interest rates for short-term FDs in India vary across different banks and financial institutions. For instance:

  • ICICI Bankoffers interest rates up to 6.60% per annum for general citizens and up to 7.10% for senior citizens for tenures ranging from 2 years 1 day to 10 years.
  • HDFC Bankprovides interest rates up to 6.60% per annum for general citizens and up to 7.10% for senior citizens for tenures from 5 Years 1 day to 10 Years.
  • State Bank of Indiaoffers interest rates up to 6.05% per annum for general citizens and up to 6.55% for senior citizens, with tenures from 24 months 1 day to 36 months.

It’s important to note that interest rates can fluctuate based on economic conditions and monetary policies.

Benefits of Short-Term FDs

  1. Safety and Security: Short-term FDs are backed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), insuring deposits up to ₹5 Lakhs per depositor per bank, ensuring capital protection.
  2. Predictable Returns: The fixed interest rate offers certainty, allowing investors to know exactly how much they will earn by maturity.
  3. Liquidity: While FDs have a lock-in period, many banks offer premature withdrawal options, albeit with a penalty, providing access to funds in emergencies.
  4. Loan Facility: Some banks allow individuals to avail loans against FDs, typically ranging up to 90% of the deposit. This offers flexibility without breaking the FD.
  5. Tax Benefits: Interest earned on FDs is taxable, but investors can opt for Tax Saving Fixed Deposits with a 5-year lock-in period under Section 80C of the Income Tax Act of 1961, potentially reducing taxable income.

Factors Influencing Short-Term FD Returns

  • Interest Rates: Higher interest rates yield better returns. It’s advisable to compare rates across banks to find the most competitive offers.
  • Tenure: Longer short-term tenures, such as 9 months to 1 year, often offer higher interest rates compared to shorter durations.
  • Compounding Frequency: Quarterly compounding can result in higher returns compared to monthly or annual compounding.
  • Taxation: The interest earned is subject to Tax Deducted at Source (TDS) of 10% if it exceeds ₹40,000 in a financial year (₹50,000 for senior citizens).

Example Calculation

Consider an investment of ₹10 Lakhs in a short-term FD with an interest rate of 6.60% per annum for a tenure of 1 year. The interest earned would be:

Interest = Principal × Rate × Time

= ₹10,00,000 × 6.60% × 1

= ₹66,000

If interest is compounded quarterly, the maturity amount would be:

Maturity Amount = Principal × (1 + Rate/4)^(4 × Time)

= ₹10,00,000 × (1 + 0.066/4)^(4 × 1)

= ₹10,00,000 × (1 + 0.0165)^4

= ₹10,00,000 × 1.0669

= ₹10,66,900

This demonstrates how compounding can enhance returns.

Choosing the Right Short-Term FD

When selecting a short-term FD, consider the following:

  • Compare Interest Rates: Use online platforms to compare FD rates across various banks to ensure competitive returns.
  • Assess Liquidity Needs: Choose a tenure that aligns with your financial goals and liquidity requirements.
  • Understand Penalties: Be aware of penalties for premature withdrawal and the impact on returns.
  • Evaluate Bank Reputation: Opt for banks with a strong reputation and customer service to ensure a smooth investment experience.

For individuals looking to explore a wide array of short-term FD options, financial marketplaces like Bajaj Markets offer a valuable resource. On Bajaj Markets, one can easily compare interest rates, tenures, and other features of short-term FDs from various banks and NBFCs, helping to make an informed decision. This comparison tool assists individuals in identifying the most suitable short-term FD plan that offers high returns in a shorter time frame, aligning with their financial objectives.

Conclusion

Short-term Fixed Deposits in India offer a secure and predictable investment avenue for individuals seeking to park their funds for a brief period. By understanding the various factors influencing returns and carefully selecting the appropriate FD, investors can optimise their earnings while ensuring capital safety. Always stay informed about the prevailing interest rates and economic conditions to make well-informed investment decisions.