Often people leave their hard-earned money lying in their savings account, where they get nominal interest. If you have additional funds of ₹ 2 lakh or more, which you are going to need in the coming one or one and a half months for some work, travel, business transactions or to pay school-college fees, then parking that money in a short-term fixed deposit (FD) of the bank instead of keeping it in an ordinary savings account can prove to be a wise financial move. FD facility is also provided for very short term period ranging from 7 days to 45 days by 'State Bank of India' (SBI), the country's largest commercial bank. The bank offers interest rates ranging from 3.50% to 3.55% to general customers and even higher interest rates to senior citizens during this period. In such a situation, if an investor deposits an amount of ₹ 2 lakh in this scheme for 7 days, 15 days, 30 days or full 45 days, then it is very interesting to know the exact calculation of how much profit he will actually get.
The returns on fixed deposits in banks are calculated using the simple interest formula based on the annual rate and actual number of days. If you deposit the principal amount of ₹ 2,00,000 in SBI at an interest rate of 3.55% per annum, then the total interest in one year i.e. 365 days comes to ₹ 7,100, which comes to approximately ₹ 19.45 per day. Now if you deposit this money for minimum 7 days, you will get net interest of around ₹136 in 7 days and the total amount on maturity will be ₹2,00,136. If you keep it for 15 days, your total interest will be ₹292 and the total maturity amount will be ₹2,00,292. Similarly, if you choose a period of 30 days (one month), you will get interest of approximately ₹ 584, making the total amount ₹ 2,00,584. Whereas by keeping a deposit of ₹ 2 lakh for the maximum period of this bucket i.e. 45 days, you will earn a total interest of ₹ 875 and on maturity, ₹ 2,00,875 will be credited to your bank account.
State Bank of India offers an additional interest of 0.50% (50 basis points) to its senior citizen customers on FDs of all tenures. This simply means that while ordinary citizens get a rate of 3.55% on FDs of 7 to 45 days, senior citizens aged 60 years or above are given an interest rate of 4.05% per annum on the same period. Based on this increased interest rate, the one day interest for senior citizens on an investment of ₹ 2 lakh comes to approximately ₹ 22.19. If a senior citizen deposits ₹2 lakh for 7 days, he will get interest of ₹155. This interest increases to ₹333 on a period of 15 days. If they hold this FD for 30 days, they will receive an interest of ₹666, and on completion of the entire 45 day period, they will receive a total interest of ₹999, making their total withdrawal amount ₹2,00,999. Although this amount may not seem like a lot, it is a very safe option to earn extra income in just a few weeks in a risk-free manner.
Most banks give interest around 2.70% to 3.00% annually on savings accounts. Generally, interest of 2.70% per annum is given in SBI's savings account. If you leave ₹2 lakh in your savings account for 45 days, you will get only around ₹665 interest at the rate of 2.70%. On transferring the same money to a short-term FD of 7 to 45 days, you get interest ranging from ₹ 875 to ₹ 999. This means that without any additional risk, by converting money into FD with just one click, you get an additional profit of ₹210 to ₹334 directly. Financial planners believe that rolling over the portion of the emergency fund that is not required to be spent immediately into such short-term FDs is the best way to prevent wastage of money.
Often there is a doubt in the minds of small investors whether their profits will be reduced due to deduction of TDS on bank FD interest. Under Section 194A of the Income Tax Act, TDS on FD interest is deducted by banks only if the total interest income from all branches of the same bank combined during a financial year crosses the prescribed limit of ₹40,000 for general citizens and ₹50,000 for senior citizens. Since the total interest received on a 45-day FD of ₹ 2 lakh remains within a maximum of ₹ 875 to ₹ 1,000, there is no question of the bank deducting any TDS on it. However, as per income tax rules, this interest is added to your total annual income under 'Income from Other Sources' and the investor has to pay voluntary tax on it as per his/her respective tax slab.
The biggest attraction of short-term FD is its liquidity, but investors should also be aware of the rules for breaking FD ahead of time. As per SBI rules, no FD can be broken before the minimum lock-in period of 7 days. If a customer withdraws the money before the completion of 7 days, no interest is payable by the bank. After completion of 7 days, if you close the FD before maturity, the bank deducts a penalty of up to 0.50% on the applicable interest rate. Apart from this, one should also be cautious about the auto-renewal option while making FD. If you have ticked auto-renewal and you have not withdrawn the money on completion of 45 days, the bank will automatically re-lock that amount for the next 45 days. So if you need money urgently after 45 days, it is safest to choose the 'Credit to Account' option.
In today's digital age, there is no need to go to the bank branch and stand in queue to open a short-term FD. If you have SBI internet banking or YONO app facility, you can activate it in a few minutes. For this, first of all login to Yono app and go to 'Deposits' option. There click on 'Open Fixed Deposit' and enter the amount to be deposited (e.g. ₹ 2,00,000). After this, select the option of 'Days' in the period selection and fill the number of days for which you want to invest between 7 to 45. Select 'On Maturity' in the interest payment option so that the entire interest gets deposited directly into your savings account along with the principal amount at the end of the tenure. Finally, as soon as you confirm the nominee and the rules, your e-FD will be created immediately, the digital receipt of which you can download immediately.