Highest FD Rates: 1-Year vs 3-Year – Which Gives More Benefit?
When deciding between a 1-year FD and a 3-year FD, several factors affect which option is more profitable:1. Interest RatesTypically, longer-term FDs offer higher interest rates.A 3-year FD often gives slightly higher rates than a 1-year FD, but the difference depends on the bank or financial institution.Example (illustrative):1-year FD: 6.5% per annum3-year FD: 7.0% per annum2. Compounding FrequencyFDs usually compound quarterly, monthly, or annually, which impacts total returns.Longer tenure + quarterly compounding → more benefitShorter tenure + lower rate → less benefitFormula:A=P×(1+rn)n×tA = P \times \left(1 + \frac{r}{n}\right)^{n \times t}A=P×(1+nr)n×tWhere:AAA = maturity amountPPP = principalrrr = annual interest rate (decimal)nnn = number of compounding periods per yearttt = tenure in years3. Liquidity1-year FD: More liquid. You can access funds sooner without much interest loss.3-year FD: Less liquid. Premature withdrawal may reduce interest or incur penalties.4. Interest Rate TrendsIf interest rates are rising, a shorter-term FD may allow you to reinvest at higher rates later.If rates are stable or falling, locking in a longer-term FD is better.5. Tax ConsiderationsInterest earned on FDs is taxable as per your income slab.Longer-term FDs accumulate more interest → higher tax liability.6. Which Option Gives More Benefit?Purely in terms of interest earned: 3-year FD usually gives more total interest.Considering flexibility and risk: 1-year FD may be better if you anticipate needing the money or expect rising rates.Quick TipIf your goal is maximum returns and you don’t need liquidity, go for the longer-term FD.
If your goal is flexibility or reinvesting at higher rates later, choose the shorter-term FD. Disclaimer:The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
If your goal is flexibility or reinvesting at higher rates later, choose the shorter-term FD. Disclaimer:The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.