Where to park cash you need back within three years

Savings accounts, liquid funds, FDs, T-bills and arbitrage funds compared on what you keep after tax — and why the ranking changes with your slab.

The short answer: For short-term money the ranking turns on tax treatment and liquidity far more often than on headline rate. Interest from savings accounts, fixed deposits, T-bills and debt funds is added to your income and taxed at your slab, so at a 30% slab a nominally attractive 7% becomes about 4.8%. Arbitrage funds are taxed as equity, which at a high slab can outweigh a lower gross rate entirely. The right question is never "which pays most" but "which pays most after my tax, and can I get it back on the day I need it".

Key points

Compare post-tax, always. At a 30% slab the tax treatment moves the ranking more than a full percentage point of headline rate does.
Match the instrument to the date: instant-access money and money with a known date three years out have different right answers.
A rate you cannot exit is not a rate. Check the penalty for early withdrawal before comparing anything.
The 80TTA exemption on savings-account interest applies under the old tax regime only — under the new regime, treat it as taxed at slab.

The question is post-tax, not headline rate

Short-term cash products are advertised on their gross rate, which is the one number that does not determine what you keep. Interest income in India is added to your total income and taxed at your slab; equity-taxed products are taxed under a different regime entirely. At a high slab that difference is larger than any realistic gap in headline rates.

Post-tax return on interest income: post-tax rate = gross rate × (1 − effective slab rate)

Effective slab rate includes the 4% health and education cess: a 30% slab is 31.2% effective.
This applies to savings accounts, fixed deposits, recurring deposits, T-bills and debt mutual funds.

The same 7% gross, at three slabs

5% slab (5.2% effective): 7% × 0.948 = 6.64%
20% slab (20.8% effective): 7% × 0.792 = 5.54%
30% slab (31.2% effective): 7% × 0.688 = 4.82%

A 1.8 percentage-point spread on one identical product, created entirely by tax. No comparison that ignores this is telling you anything useful.

The options, and what each is actually for

Short-term parking options by access, risk and tax treatment
Option	Access	Main risk	Taxed as
Savings account	Instant	Inflation	Interest — at slab
Sweep-in fixed deposit	Instant, partial break	Rate penalty on early break	Interest — at slab
Overnight fund	1 working day	Very low	Interest — at slab
Liquid fund	1 working day	Low credit risk	Interest — at slab
Money-market / ultra-short fund	1 working day	Credit and mild rate risk	Interest — at slab
Fixed deposit (term)	Penalty to break	Rate penalty; inflation over long terms	Interest — at slab
Treasury bill	Tradeable, or hold to maturity	Effectively none on default	Interest — at slab
Arbitrage fund	2–3 working days	Low; return varies with market spreads	Equity — 20% short-term, 12.5% long-term

Category descriptions, not product recommendations. No specific fund, bank or scheme is named anywhere on FinatriX.

The last row is the one that changes rankings. Because arbitrage funds are taxed as equity rather than at slab, a 30%-slab taxpayer can keep more from a lower gross rate there than from a higher one on a deposit. At a 5% slab the same choice is close to irrelevant.

Matching the option to the date

Might need it this week — savings account. Any return is a bonus; the job is availability.
One to six months — liquid or overnight fund, or a sweep-in FD. Settlement in a working day, no penalty, meaningfully better than a savings rate.
Six months to two years, date known — a fixed deposit maturing near the date, or a money-market fund. Certainty is worth more here than the last few basis points.
Two to three years, some flexibility — an arbitrage fund becomes worth considering at a high slab, once its long-term equity treatment applies.
More than three years — this is no longer short-term cash. It belongs in an asset allocation rather than a parking product, because at that horizon inflation is the dominant risk.

ParkSmart: Enter your amount, horizon and tax slab to rank these options by what you actually keep after tax, with the minimum sensible holding period enforced per instrument.

What "low risk" leaves out

Every option above is low risk relative to equity, and none of them is risk-free. Being precise about the differences matters more here than anywhere else on this site, because this is money you are counting on being there.

Bank deposits are insured by the DICGC up to ₹5 lakh per depositor per bank, covering principal and interest together. Debt mutual funds carry no equivalent guarantee.
Liquid and money-market funds hold short-maturity debt and carry credit risk. Indian debt funds have taken losses on downgrades before; "very low risk" is accurate and "no risk" is not.
Arbitrage fund returns depend on the spread between spot and futures prices, which compresses in quiet markets. The tax treatment is dependable; the return is not fixed.
A savings account is the only option with genuinely no capital risk, and it is also the one most likely to lose to inflation in real terms.

Frequently asked questions

Where should I keep money I need in six months?

Somewhere that settles within a working day and carries no exit penalty — typically a savings account for the portion you might need instantly, and a liquid or overnight fund or a sweep-in fixed deposit for the rest. At a six-month horizon the difference between the best and worst sensible option is small in rupees; the difference between accessible and locked is not.

Are liquid funds safe?

They carry low but non-zero risk. They hold very short-maturity debt, so interest-rate risk is minimal, but credit risk exists and has caused losses in Indian debt funds before. They are not deposit-insured the way a bank balance is up to ₹5 lakh. "Very low risk" is the honest description; "no risk" is not.

Why does my tax slab change which option is best?

Because these instruments are taxed under different rules rather than at different rates on the same base. Interest income is taxed at your slab, while arbitrage funds are taxed as equity — 20% short-term or 12.5% long-term above the exemption. At a 5% slab the gap barely matters; at 30% it can reverse the entire ranking.