How the Tenure on Your FD Affects Its Interest Rate

The tenure of your FD is one of the important factors that determines your Fixed Deposit interest rate. Know more about it wow the tenure on your FD affects its interest rate.
OPEN FD
3 mins
6 December 2024

Several factors affect the interest rate on your Fixed Deposit, just as they would affect the interest rates offered on a loan or the premium offered on insurance. While the general economic climate of the country will have a significant role to play, there are factors specific to your application that issuers will look at when offering you an FD rate, one of which is the tenure of your FD. Here’s how.

Choose a longer tenure for higher interest rates

Most issuers offer higher interest rates for long-term FDs. For example, for a 24-month FD, Bajaj Finance offers up to 0.40% p.a. higher interest rate than an FD for 12 months for the cumulative variant and a 0.52% higher interest rate for the same tenure on a non-cumulative FD with a monthly payout. Issuers offer better rates for long-tenure FDs specifically to motivate long-term investments. If you need to access the money at regular intervals, you can still invest it for a longer time frame and opt for a non-cumulative variant.

Pro tip

Bajaj Finance launches a new variant, "FD Max", for investments upto Rs. 25,000 . Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a.for senior citizens and 8.60% p.a. for non-senior citizens , in this variant.

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Protect your corpus from market fluctuations with long-term FDs

The interest rate on FDs does not fluctuate the way it does with many other forms of investment. This means that your money earns stable interest throughout the tenure. A long tenure means long-term protection against market fluctuations. In the case of a short tenure FD, assuming you do not immediately renew your account, or your issuer has reserved the right to re-assess the interest payable, you run the risk of needing to reinvest at a lower rate of interest, once your investment reaches maturity.

Reinvest interest for higher returns

While you may have the option to withdraw the interest earned on your FD (when you choose the non-cumulative variant), reinvesting the interest earned will offer you higher returns in the subsequent year since the interest is earned on the total amount. The longer your FD tenure, the more opportunity you have for reinvestment, and the larger your returns will be. Thus, choosing cumulative FDs over a tenure of 36 to 60 months is highly lucrative. For example, you can invest as low as Rs. 15,000 with Bajaj Finance and get a return up to 8.85% p.a. on your investment for 42 months.

Choose auto-renewal to get a higher interest rate

Many issuers offer you a higher interest rate if you sign up for the auto-renewal facility. The benefit of this is two-fold: one, you don’t have the hassle of keeping track of renewal dates and paperwork, and two, you can avail of a competitive rate of interest for a longer tenure.

Therefore, a long tenure FD offers you better interest rates than a short tenure one and there are also indirect ways in which a long tenure FD offers you a higher return on investment. In conclusion, opting for a long tenure FD is sure to pay in the long run.

Frequently Asked Questions

What is tenor in fixed deposit?

The tenor in a fixed deposit refers to the period for which you invest your money. It can range from a few months to several years. Bajaj Finance offers FD tenures ranging from 12 to 60 months.

What is the ideal Fixed Deposit tenor for senior citizens?

An ideal tenor for senior citizens varies, but it's often considered best to align with their financial goals, such as regular income or long-term growth. Shorter tenors may offer liquidity, while longer tenors can maximise returns.

What is the difference between the Interest Rates of FDs and Savings Accounts?

FDs generally offer higher interest rates compared to savings accounts, making them a better choice for growing your savings.

How can I get a higher interest rate on my FD?

To get a higher FD interest rate, you can consider longer tenors, explore special schemes for senior citizens, or invest in company deposits or non-banking financial institutions where rates might be more competitive.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.