Higher rate of interest is provided by banks on fixed deposits for long periods. This is because fixed deposits for long periods are considered to be more stable and secure for the bank, as the money is locked in for a longer duration. The bank can use this money for various investments and lending activities, which in turn generates profits for the bank. Therefore, banks offer a higher rate of interest as an incentive for customers to deposit their money for a longer period of time.

Below are the reasons why banks provide a higher rate of interest on fixed deposits for long periods:

1. Stability and predictability: Fixed deposits for long periods provide stability and predictability to the banks. The money deposited in these accounts cannot be withdrawn before the maturity date, ensuring that the bank has a stable source of funds for a longer duration.

2. Liquidity management: By offering higher interest rates on fixed deposits for long periods, banks encourage customers to keep their money locked in for a longer duration. This helps banks in managing their liquidity and reduces the risk of sudden withdrawals that can disrupt their operations.

3. Profit generation: Banks use the deposits from customers to invest in various financial instruments or lend to borrowers. By offering a higher rate of interest on long-term fixed deposits, banks can earn more interest income from these investments or loans, which in turn contributes to their profitability.

4. Lower risk for the bank: Fixed deposits for long periods are considered to be less risky for banks compared to shorter-term deposits. This is because customers are less likely to withdraw their money before the maturity date when they receive a higher rate of interest. This reduces the risk of loss for the bank and allows them to offer a higher return to the customer.

In conclusion, banks provide a higher rate of interest on fixed deposits for long periods because it benefits both the customer and the bank. The customer receives a higher return on their investment, while the bank can use the funds for various financial activities and generate profits.