There will be times you’ll have an urgent requirement for funds and you’re tempted to break your Fixed Deposit account in advance. This isn’t a good idea. We tell you why.
You have a good sum in your Fixed Deposit account and there’s a financial emergency. What do you do? No! You don’t break your Fixed Deposit account. There are other ways to arrange finances rather than premature withdrawal.
Disadvantages of Breaking your Fixed Deposit Account Before Time
The drawbacks of choosing to break your Fixed Deposit account before its maturity are listed below.
- This decision affects your rate of interest on FD. Maintaining a Fixed Deposit account is a source of regular income.
- You’ll have to deal with a penalty on premature withdrawal. Here’s how banks calculate the penalty—interest rate applicable for actual period of Fixed Deposit as per the rates prevalent at the time of investment – 1%. You can also use an FD maturity calculator to find out how much money you’re losing out on.
Alternative to Premature Withdrawal of your Fixed Deposit Account
Instead of breaking your Fixed Deposit, take a loan against your Fixed Deposit account. The advantages of taking a loan are:
- Your Fixed Deposit account continues to earn interest
- Many banks offer you up to 90-95% on your Fixed Deposit account as loan amount. The loan you acquire depends on the Fixed Deposit amount and varies from bank to bank
- In most cases, you won’t be charged an additional fee if you take a loan against your Fixed Deposit account
- You get sufficient time to repay your loan but it cannot exceed your Fixed Deposit tenure. You also get to choose a suitable repayment structure
- The loan can even be settled at the time of the Fixed Deposit maturity. If you’re unable to clear the loan amount in time, the amount will be adjusted against the Fixed Deposit funds
- While applying for a loan against a Fixed Deposit account you won’t have to go through the hassles of documentation and application. All you have to do is approach your bank and they will sanction the amount
Breaking a Fixed Deposit account involves penalty and in turn loss of a decent sum of money. 1% may seem like a small bargain but adds up to quite a number in the long run. It’s a feasible option to take a loan against your Fixed Deposit account.
How to Apply for a Loan Against Fixed Deposit?
Once you’ve decided to take a loan against your Fixed Deposit account all you have to do is fill a form and submit your Fixed Deposit receipts with the bank. After this your bank will approve the loan and the amount will be credited to your account.
Points to Remember:
- You will granted a loan against your Fixed Deposit account only if it’s free from lien, restraint or encumbrance.
- The account can not be in the name of a minor.
- In the case of a joint Fixed Deposit account, all the account holders must sign the loan documents. The liability to repay the loan will be will be on each one’s shoulder.
- You’ll continue to receive the interest on your Fixed Deposit account.
- Repayment structure of the loan amount can be in the form of EMIs
This is why taking a loan against your Fixed Deposit account makes a whole lot of sense that going for a personal loan to meet your immediate financial needs. It’s convenient, easily accessible, and if you’re incapable of repaying the loan amount your assets won’t be in danger.