Introduction to Long Term Savings

Different financial goals require different savings approaches. Short-term savings are ideal when you are in need of liquidity as well as interest earnings. If your financial goals have extended deadlines, a long-term savings option could work perfectly. 

A long-term savings account is designed for saving over an extended period. Depending on the account, there could be certain restrictions on withdrawals, and some long-term savings accounts also offer tax advantages. These accounts allow you to capitalize on the power of compound interest over time, allowing you to earn interest on your interest. A long-term savings account offers the potential for your money to steadily grow until you're ready to use it. Ideally, a long-term savings account is reserved for funds that you'll need more than five years in the future.

Additional Reading: 6 Best Risk-Free Investment Options in India

What is a Fixed Deposit?

A Fixed Deposit is a financial investment instrument offered by banks & NBFCs wherein you can deposit money and get a higher rate of interest as compared to a normal savings account. Considered to be one of the safest long-term investment alternatives, a Fixed Deposit can help you preserve your savings. It offers a steady flow of interest earnings as compared to other risky alternatives such as equity investments or even mutual funds. 

Who Can Offer A Fixed Deposit?

  • Various banks and NBFCs offer a fixed deposit account with different interest rates. You can have the freedom of selecting an option that suits your requirements. Depending on the alternative that offers maximum interest rates and also liquidity, you can select one for opening a fixed deposit account. 

  • Who Can Open a Fixed Deposit – Following individuals/groups can open an FD account:

    • Resident Individuals 

    • Hindu Undivided Family 

    • Companies, Partnership Firms or Sole Proprietorships 

    • Family Trusts 

    • Associations, Clubs, and Societies 

How Can You Open FDs?

Opening a fixed deposit account is very easy as long as you have the necessary documents. FDs can be opened by visiting the bank branch or by the online mode.

  • In Branch – You can fill up the FD application form and submit all needed documents along with a cheque for opening the FD. 

  • Net banking/Online – You can log into the bank’s website if you are an existing customer. By filling in the necessary details such as time period, amount, nominee, etc, you can easily open an FD. You will need to transfer money to the online FD account as a final step for opening FD.

Top 10 FDs & Their Features

Here are the top 10 FDs in India that are ideal for keeping aside savings for a minimum period of 3 years that come with attractive interest earnings.

 Bank / Company  Interest Rate per annum 
(Regular) in %

 Interest Rate per annum
(Senior Citizen) in %
 Fincare Small Finance Bank  9  9.5
 KTDFC  8.25  8.5
 Shriram City  7.85  8.1
 Mahindra Finance  7.55  7.8
 Sundaram Finance  7.21  7.7
 Lakshmi Vilas Bank (LVB)  7.15  7.75
 ICICI Home Finance  7.1  7.35
 Yes Bank  7  7.5
 ICICI Bank  6.5  7
 HDFC Bank  6  6.5

 

Some of the important features of these top FDs are as below:

  1. Fincare Small Finance Bank

    1. Better interest rates as compared to other banks in the industry

    2. The FD comes with a number of flexible interest pay-out options and premature withdrawal is provided by the bank

  2. KTDFC

    1. 7.50% p.a. is offered for term deposits opened for a period of 3 years

    2. TDS is applicable on all FD schemes

    3. KTDFC also offers Periodic Interest Payment Schemes (PIPS) and Money Multiplier Schemes (MMS)

  3. Shriram City

    1. The rate of interest offered on non-cumulative deposits for 3 years is 9% p.a.

    2. The company also offers cumulative term deposits

  4. Mahindra Finance

    1. Samruddhi Cumulative Deposit scheme has one of the best interest rates at 8.45% p.a. applicable for general citizens

    2. The interest on these deposits are compounded on an annual basis

    3. Various interest pay-out options are also available

  5. Sundaram Finance

    1. Attractive interest rates and other benefits are offered by Sundaram Finance

    2. Premature withdrawal and nomination facility is also available

  6. Lakshmi Vilas Bank

    1. An interest rate of 7.50% p.a. is offered to the general public for opening a term deposit having an investment period of 3 years

    2. 1% penalty fee applicable in case of premature withdrawal

    3. Penalty not applicable for deposits above Rs.1 crore

  7. ICICI Home Finance

    1. An attractive interest rate of 7.85% p.a. is offered to the general public for a 3-year investment tenure

    2. The rates offered include base rates as well as special rates

  8. Yes Bank

    1. Yes Bank offers a special rate of 7.75% p.a. on time deposits ranging from 36 months 10 days to 36 months 20 days

    2. Reinvestment option is available for a minimum tenure of 6 months 1 day

  9. ICICI Bank

    1. The annual percentage rate paid by ICICI Bank on FDs opened for a period of 3 years is 7.10% p.a.

    2. Senior citizens are paid an interest of 7.60% p.a.

  10. HDFC Bank

    1. The rate of interest paid on HDFC Bank FDs for a 3-year tenure is 7.00% p.a.

    2. Senior citizens can earn an interest rate of 7.50% p.a.

Tax-Saving Fixed Deposit

Tax saver fixed deposit (FD) is a type of fixed deposit in which you can get a tax deduction under section 80C of the Indian Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs. 1.5 lakh by investing in tax saver fixed deposits.

Features and Benefits

  • These have a higher interest-earning potential than a savings account

  • Tax-saving FDs allow only a one-time lump sum deposit

  • Flexibility in the amount and tenure for investors

  • Tax deduction up to Rs. 1.5 lakh under Sec 80C

  • Premature withdrawal is not allowed

  • Lock-in period of 5 years

  • Rate of Interest generally range from 5.5% – 7.75%

Factors to Consider While Investing in FDs

  1. Safety: FDs are secured investments that offer assured returns. Fixed deposits offered by corporates and other NBFCs are rated by credit rating agencies, so you need to choose them wisely. If you are planning to invest in a corporate FD, always go for corporates that enjoy high ratings like ‘AAA’ or similar. 

  2. Minimum Deposit: Many banks and companies have different minimum and maximum deposit amounts. It is advisable to check these before investing. 

  3. Tenure: Fixed Deposits can range anywhere between a few days to 1 year to 10 years. Always choose your tenure carefully, as premature closure of an FD attracts a penalty that will reduce the total interest earned on your deposit. 

  4. Interest Rate: Interest rates on FDs could be cumulative or non-cumulative, depending upon the choice you make. If you are looking for a regular income on a monthly, quarterly, half-yearly or annual basis it is best to opt for non-cumulative schemes. 

  5. Tax Deduction at Source: If the interest income from the fixed deposit is more than Rs. 5,000, the bank or company will deduct tax at source. 

Additional Reading: 7 Tips on How to Invest in High Interest Fixed Deposits

End Note

Fixed Deposits are one of the safest and most preferred investment options available for risk-averse investors. FDs allow you to manage your financial risks and help fulfil your goals aspired for different stages of your life. These could involve securing your child’s future, his or her education and marriage, or as a hedge against unexpected expenses. Such deposits are also a smart way to build savings corpus over a period of time.