Looking for a safe place to park money for a few months? This guide explains short-term FDs, current interest rates, tax treatment, and how they fit into conservative financial planning.
Not all financial goals are long-term; some are immediate, like buying a car within a year, paying for your child’s school admission, setting aside money for a planned wedding expense, or simply holding funds until the next investment decision becomes clearer. In such cases, exposing this money to volatile instruments like equities can create unnecessary risk and uncertainty.
In such circumstances, short-term FDs can be a viable option. In this blog, we will cover what short-term fixed deposits are, the different short-term FD options available in India, how they are taxed, and when they make sense within your broader financial plan.
What is a Short-term FD?
A short-term fixed deposit (FD) is a secure investment in which you place money with a bank for a brief period, usually 7 days to 1 year. It provides better returns than a savings account while ensuring that your money is safe and readily available when it matures.
Here, your returns are predictable as the interest rate is set at the time of deposit, making it a dependable option. DICGC insurance of up to ₹5 lakh across commercial and select small finance banks adds an additional layer of comfort to short-term FDs, making it more appealing.
However, interest rates on these FDs might vary from bank to bank. Let’s take a look at the short-term FD rates of various banks.
Bank-wise Short-term FD Interest Rates
Here is a bank-wise comparing table of interest rates
| Bank | General Public (%) (6M to 1Y) | Senior Citizens (%) (6M to 1Y) |
| HDFC Bank | 6.35 – 6.45 | 6.85 – 6.95 |
| Axis Bank | 6.25 – 6.60 | 6.75 – 7.10 |
| IDFC FIRST Bank | 5.50 – 6.50 | 6.00 – 7.00 |
| Central Bank of India | 5.50 – 6.25 | 6.00 – 6.75 |
| SBI | 5.60 – 5.90 | 6.10 – 6.40 |
| Slice SFB | 6.25 – 7.00 | 6.50 – 7.25 |
| Suryoday SFB | 5.50 – 6.75 | 5.70 – 6.95 |
| Jana SFB | 6.50 – 7.00 | 7.00 – 7.50 |
| Utkarsh SFB | 6.00 – 7.25 | 6.50 – 7.75 |
(As of 16th January 2026)
You can earn up to 8% p.a. interest on FDs from small finance banks partnered with Jiraaf.
Short-term FD vs Other Short-term Investment Options
Short-term FDs are just one way to park your money safely for a few months to a year. There are various investment options available that can cater to the same purpose.
- Treasury bills: T-bills are zero-coupon instruments issued by the RBI on behalf of the central government. You can invest in 3 types of T-bills, having maturities of 91, 182, and 364 days.
- Liquid mutual funds: These funds provide easy withdrawals and have a slightly higher rate of return than FDs, although returns are dependent on the market and not guaranteed.
- Recurring deposits: RD requires you to make fixed monthly deposits and encourages efficient saving. While interest rates are comparable to those of FDs, your capital gets locked in until the deposit matures.
Now that you know how short-term FDs stack up against other investment options, the next question is when it makes sense to choose an FD for your money.
When to Choose Short-term FDs
When you require simple access to money in a short period of time, safety, and predictable returns, short-term fixed deposits can be an option to consider. A short-term FD makes sense in the following situations.
- Emergency funds: A short-term FD is a dependable option if you want to keep your money safe and earn more than a savings account but without taking out money before maturity.
- Near-term goal savings: FDs offer a low-risk, disciplined way to save your money for short-term needs such as weddings, vacations, tuition fees, or any other spending that takes place within three to twelve months.
- Temporary excess funds: If you have additional money in your account that isn’t being used, you can use it as a short-term investment.
- Conservative investing: FDs provide guaranteed interest with minimal risk for conservative investors who value safety over returns. They can choose this.
- Higher post-tax comfort for certain investors: Many banks offer additional interest rates on senior citizen FDs.
- Tax efficiency on returns: Certain FDs offer tax advantages, making the post-tax returns attractive for conservative investors.
Before you invest, it’s important to understand how the interest earned on short-term FDs is taxed and what it means for your actual returns.
Taxation on Short-term FD Interest
- Tax Deducted at Source (TDS)
- Resident individuals: Banks deduct TDS at 10% (20% without PAN) if the interest income exceeds ₹50,000 in a financial year (₹1,00,000 for senior citizens).
- Non-residents: TDS is deducted under Section 195 at applicable rates (typically 20% for interest, plus surcharge/cess), on taxable payments irrespective of amount.
- Taxable interest income
FD interest is added to total income under “Income from Other Sources” and taxed as per your income tax slab rates. By submitting your income tax return, you can claim credit for TDS or request a refund if total income falls below the taxable limit.
Understanding how interest from short-term FDs is taxed helps you evaluate their post-tax returns clearly, which is essential before deciding how they fit into your overall financial plan.
Conclusion
Short-term FDs work best when your money is in transition. Whether you’re between investments, waiting to deploy capital, or aligning funds with an upcoming expense, they act as a temporary yet reliable parking space.
Instead of letting cash sit idle or taking unnecessary risk, a short-term FD helps you stay invested without committing too far ahead. Used this way, short-term FDs allow investors like you to deploy funds strategically, bridging gaps between liquidity needs and future financial decisions.
