Long Term Fixed Deposits: What are the Advantages and Disadvantages of Investing in Them?

Long Term Fixed Deposits: An Overview

Being acknowledged as the most viable investment instrument, fixed deposits tend to offer several reasons for their popularity among retail investors. They soar in the trend due to their secure nature with a good return on the corpus of the investors. All of this at almost no cost of investment and easy accessibility. Fixed deposits in India trend as one of the most preferred forms of investment type for any investor age. 

Long-term Fixed Deposits: What is the Maximum Tenure?

Fixed deposits can also be defined based on their tenure. They can range from a short-term investment of as low as a tenure of 7 days, the mid-term period for about 3-5 years, and a maximum tenure of fixed deposit i.e. long-term deposits from 5 years and above to 10 years. A fixed deposit is an essential component in your portfolio, specifically if you are a long-term investor. Let us explore the important details of long-term deposits, their advantages and the best long-term fixed deposit interest available in India.

Long-term fixed deposits as mentioned are fixed deposits with a tenure ranging from 5-10 years. These are identified as long-term funds. Investors can choose to park their money on such long-term funds, based on their investment goals and desired amount, as based on predetermined interest rates. However, an investor must be certain of his choice, as it may add to his cost of investment if he decides to withdraw such an amount at a premature interval. Thus losing on the designated interest and principal amount at maturity.

You, as an investor, can choose to explore varied options before choosing the right form of investment. Also, if you wish to calculate the amount of interest that you shall be able to earn on your suited rate of interest, you can avail an online interest calculator. This shall help you assess the return that you may expect on your significant deposit at maturity.

How to Invest in Long-term Fixed Deposits?

To invest in long-term fixed deposits, one can choose both online and offline options. Traditionally you can choose to visit your bank's designated branch and open a fixed deposit account with an initial deposit and required formalities and documents. The details of the account then shall be sent to you within 3-7 working days.

With the comfort of online banking and the shifting of most banking services to digital mode, you can easily choose to open an FD account from anywhere, at any time. You can either opt for online banking or the banking app of your designated bank. You can even opt for third-party apps today to open your fixed deposit account online by comparing the best interest rates available across financial institutions. 

To open an FD account online, you just need to follow the following steps:

• Choose the type of fixed deposit you wish to open.
• Then submit the required personal details such as date of birth, pan card details, nominee, etc.
• Select the initial deposit amount as well as the tenure of investment.
• Upload a copy of the necessary documents and carefully go through the terms and conditions of the investment before handing in your details.
• Deposit the selected principal amount and you are all set to open an FD account with your desired bank.
• You can also opt to link your savings account with your fixed deposit account if you have opted for the option.

Eligibility

Here are the eligibility criteria for investing in a long-term FD:

• You must be an Indian resident.
• Age 18 or older is required.

You must have a bank or cooperative bank account to invest in a fixed deposit. If you're unsure whether your bank qualifies, check out this list of banks allowing you to open an FD account. If you don't have one yet and want to open one before investing, here are some suggestions.

An NRI can also invest in long-term fixed deposits; however, they have to submit proof of identity (POI) from his home country along with a copy of address proof (Aadhaar Card/ Passport, etc.) while opening the account with any Indian Bank or Financial Institution like HDFC Bank or ICICI Bank, etc., who has written UCO Bank Ltd., Mumbai Branch as its paying agent against their signature on POI issued by them which should contain name & address details like Permanent Account Number (PAN), passport number, etc., so that they can use it as record keeping purpose too while processing such transactions under FEMA Notification No 2(iii) dated 6th September 2011 issued by Government of India's Ministry of Finance issued Notification No. 1157 /FEMA 0111/2011 dated 4th October 2011.

How to apply?

You can apply for a long-term fixed deposit via the online portals of the bank.

You can also go to the bank's branch and apply for it.

You can also apply for a long-term fixed deposit via your ATM.

If you are not comfortable with filling out forms, you may choose to apply through mobile banking. However, this option is unavailable everywhere, so make sure your bank offers this service before applying!

To be eligible for investing in a long-term fixed deposit, you must have:

1) A savings or current account with the bank; and 

2) A valid PAN Card, 

3) Address proof, 

4) Age proof (18 years or above).

How to apply for a long-term FD

You can apply for a long-term FD by visiting a branch of the bank that you want to invest in or applying online. If you want, you can also apply by phone or through your public sector bank. If you want to go the private sector route, you should know that they generally don't accept applications from new customers.

The application process is straightforward and quick. You'll need to submit your documents and provide proof of identity, which you can get from your passport or voter ID.
 

How to earn more out of a long-term FD

One of the ways to earn more from a long-term fixed deposit is the Interest rate.

The interest rate on a long-term FD is higher than that of short-term FDs, as the bank gives you more guaranteed returns over a more extended period. If you invest Rs 1 lakh in an FD for one year at 9% annual interest, you will earn Rs 9,000 as interest after one year. However, if you invest Rs 1 lakh for five years at 6% annual interest per annum and then withdraw the amount after five years, it would fetch you just about Rs 35,000 in total (Rs 50000*1 + 15000*2 + 10000*3 + 5000*4 + 2500 = 35000). So with extended investment periods come lower returns on your money than shorter ones! Nevertheless, you should not avoid investing in long terms deposits altogether; many advantages make these investments preferable over others – read on!

High liquidity The FD allows you to withdraw your money anytime without penalty. You can request the bank to transfer a certain amount of money into your account within 24 hours. This feature makes long-term deposits ideal for people who don't want to keep their hard-earned money indefinitely.

Advantages of Investing in Long-term Deposits

• Suitability for long-term financial goals: Long-term deposits are highly sustainable for financial goals that require a decent tenure of about 5-10 years. For instance, education plans, business plans, marriage goals, etc. One can choose to park their money strategically to avail the benefit of compounding and high interest in the long run.
• Availing Loan and Overdraft Facility: Most financial institutions and banks readily provide loans and overdraft facilities against such long-term fixed deposits. You can also choose to avail a credit card facility by using such a deposit as your collateral.
• Guaranteed Returns: With a predetermined or fixed rate of interest, FDs stand to provide for assured returns on investment. There is almost no risk of losing your corpus amount along with a guaranteed interest amount that you can avail of at the time of maturity, along with the principal amount. Also, since there is no cost of investment except the nominal bank charges, the returns provided on fixed deposits can help you to generate a high deal on your invested money.

Disadvantages of Investing in Long-term Deposits

• Rigid Lock-in Period: Long-term deposits require a minimum lock-in of about 5 years. This may tend to lose the value of money against the time interval. Also, the interest rates provided on such fixed deposits may not be able to curb the risk of inflation, therefore it is of utmost importance to choose to invest in such a long-term option, taking into consideration such factors as time and inflationary risk in mind.
• Cost of Withdrawal: As per the terms and policies of your bank and fixed deposit type, you may have to bear the cost of a premature withdrawal in the form of a penalty. This may lead to losing out on the opportunity of generating compounding effects on your investment. Thus eventually losing out on required returns on investment.
• Lack of Options: There are different types of fixed interest available, but as far as long-term funds or deposits are concerned, there are few visible options that are left in the hands of investors to invest. Also, investing in less credible corporations can land the investor in uncalled-for trouble and risk losing the corpus amount if the company fails to deliver.

Best Long-term FD Interest Rates

After understanding the extensive details on long-term fixed deposits as well as their benefits and risk of investing, you shall be able to gauge if it is a fit for you as per your required form of investment opportunity. Now let us explore some of the major banks and financial institutions that provide the best internet rates on an FD in India. However, these rates are subject to change as per the policies and norms of such financial companies. Therefore, kindly understand the terms and conditions of investing in such companies before making an investment decision.

Fixed deposits in general and Long-term fixed deposits in specific are a lucrative form of investment for those who are the risk-averse type of investors and yet intend to earn a decent amount of return on their long worked money on the investment. Term deposits have been a popular choice for ages and drive the investor due to their high compounding rate, stable returns, and no-risk investment. However, the long-term tenure of as high as 10 years may not be a set for everyone’s scheme of things, therefore one must understand their financial planning and strategies before making such a commitment toward an investment. Also, as mentioned the risk of inflation and the time value of money are two other factors for investors to conjure to not be trapped into a wrong investment decision.