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How to choose your FD tenor?

By siliconindia   |   Monday, July 29, 2019
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How to choose your FD tenor?

When investing in a fixed deposit, one of the key aspects to consider is its tenor. Choosing the right tenor is important, as it impacts your interest rates and liquidity. Amid falling FD interest rates, it is more important than ever, to choose the right tenor that helps you get maximum returns.

Here's a look at the 5 factors you need to consider, when deciding the tenor for your fixed deposit.

Higher FD interest rates for longer tenor

Many financial institutions offer higher interest rates when you invest for a long tenor. This,clubbed with the process of compounding interest results in you earning handsome returns.For instance, for regular investors Bajaj Financeoffers new customers 8%interest on a 12-month Fixed Deposit, 8.15% interest on a 24-month FD and 8.60% interest on a 36-month FD, where interest is payable at maturity.

How does this affect your returns? Take a look the following example to get a clearer picture.

Deposit amount
(in Rs.)
Tenor
(in months)
Interest rate
(in %)
Interest earnings
(in Rs.)
1,00,000 12 8.00 8,000
1,00,000 24 8.15 16,964
1,00,000 36 8.60 28,028
1,00,000 60 8.60 51,060

You not only get higher FD interest rates, but also higher returns, as you allow your investment capital to compound over a longer tenor.

Special tenor schemes offer better returns

Some issuers offer special FD schemes that allow you to earna relatively higher interest rate when you invest a specific amount for a set duration.

Bajaj Finance offers an additional interest rate of 0.05% when you invest Rs.1lakh an FD for 15 months. This means instead of earning 8% that you would otherwise, you can earn 8.05%. The interest deferential that you can enjoy is as follows.

Type of fixed deposit
Deposit amount
(in Rs.)
Tenor
(in months)
Interest rate
(in %)
Interest earnings
(in Rs.)
Regular 1,00,000 12 8.00 8,000
Special tenor scheme
1,00,000 15 8.05 10,162

From the above table, you can see that investing in a special tenor scheme will give you additional interest amounting toRs.2,162.

A 5-year tax-saving FD gives you added benefits

Apart from high returns, if you are also looking to save on tax, consider a 5-year tax-saving FDoffered by most banks in India. You can use a 5 year-tax saving fixed deposit to claim a tax deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act, basis the amount you invest. However, you cannot make partial or pre-mature withdrawals against this FD and also the interest is fully taxable as per income tax laws.

An FD calculator helps you find a suitable tenor for your investment

You can also arrive at the ideal FD tenor by using an FD calculator, an online tool offered by most issuers. With this calculator, you can ascertain the total earnings that you will receive given your principal and tenor. By entering various combinations of deposit amount and tenor, you can identify the combination that aligns with your goals and investaccordingly.

Ladder your FDs to balance returns and liquidity

One of the main objectives of investing is to save for various life goals like paying for your child's tuition, purchasing a car, or funding business expansion. To be able to meet such goals it's important to plan your investments well in advance. When investing in Bajaj Finance FD, you can choose multi-deposit facilities, wherein you can invest in up to 5 FDs through a single cheque.

Check out how you can utilise this facility to achieve various goals as a first-time investor:

Goal
Amount required to meet the goal (in Rs.)
Tenor
(in years)
Deposit amount required
(in Rs.)
Maturity amount
(in Rs.)
Children's higher education fees
10,00,000 5 6,62,000 10,00,016
Home loan down
payment
5,00,000 3 3,91,000 5,00,802
Overseas vacation 3,00,000 2 2,57,000 3,00,598

Thus, you can choose the right tenor and invest in one or more of Bajaj Finance FDs to benefit from some of the best interest rates in the country. The best part is you can start an investment online too,with as little as Rs.25,000. Simply fill an online form and start investing right away.

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