Which one you will prefer - short term or long term Bank FD?
There is no straightforward answer that works for everyone for every situation. Purely depends on the financial goals and the reason behind going for an FD (short term or long term). As the FD rates fluctuate these days, what is considered a good option may not hold true after a few months or years.
If FD rate is good for long time then we can keep it like that. If the rate decreases then we would be benefited.
One thing I keep in mind while creating FDs is that irrespective of short term or long term - I break up the FDs into 2 or 3 individual FDs. So that in case I need to break the FD, I can just break one of the 3 FDs and let other FDs stay on. Helps with managing liquidity.
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Short term if I expect Interest rates to go up in the near future…
And Long Term if I expect rates to fall in the future…
If you get higher rates for long term fds it is always better to lock the rate. As you rightly said if the rates goes up you can pre-close and open it again at a higher rate. The benefit is you are locking in the rates in case rates fall. This is the biggest advantage of fds.
Yes you need to pay a penalty for pre-closure but it is still beneficial.
Nowadays i don’t think you will get higher rates for long term. Short term is higher as there is a general expectations of fall in rates.
Check any of the banks in small finance bank category none offer higher rate for long term
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