FD Tips: 99% people do not know what is the biggest mistake of breaking FD in between..

Fixed Deposit (FD) has always been considered a symbol of safe investment in households, which keeps the savings safe with fixed interest. However, in emergencies, many people break FD prematurely, which increases the risk of interest loss, penalty, and spoiling the financial plan. So let's know whether to break FD when needed or not....

FD Investment Tips

Generally, Fixed Deposit (FD) is considered a very reliable and safe way of investment for Indian families. People invest in FD to keep their hard-earned savings safe and get a fixed return on it. But, many times in an emergency when money is needed, people break their FD before time, i.e., before it matures. Doing this can prove to be a big mistake for your financial health. So let's know what the disadvantages of breaking FD are and what the best option is in an emergency.

1. Reduction in interest
The biggest disadvantage of breaking FD is regarding interest. The bank does not pay interest on your FD at the rate that was to be received on maturity. Yes, it calculates the interest for the period for which you kept the money, and that rate is usually low.

2. Penalty
If you break the FD before the time, most banks charge a penalty of 0.5% to 1% on premature withdrawal. This further reduces your total return. For example, if you have made an FD for 5 years at an interest rate of 7% and break it after 2 years, then the bank will give interest at the lower rate applicable for the period of 2 years and will also deduct a penalty.

Why is it not right to break FD?
If you break the FD in the middle, you suffer a double loss: first, you get less interest, and second, you also have to pay a penalty. So this reduces the expected return from your FD significantly, making it difficult to achieve the financial goal for which you made the FD.

What is the better option?

Instead of breaking the FD in an emergency, you can take a loan on the same FD. You can take a loan from the bank by mortgaging your FD. The bank can give a loan of up to 80 to 90% of the value of your FD. The specialty of this loan is that your FD remains safe and you keep getting interest on it as before.

Why is it the best?
The loan on fixed deposit (FD) is a good option for those who need money immediately but do not want to break their FD. The interest rate on this loan is usually only 1-2% higher than the interest rate of an FD, which is much better than the high interest rate of a personal loan. Let us tell you that there is no penalty in this because your FD continues till maturity and you get full interest. The process is easy and fast, in which the bank gives immediate approval, and there is no need for much paperwork.

What is the best option
Let us tell you that breaking FD when you need money can be an emotional decision, but it is financially harmful. So instead of breaking the FD in the middle, taking a loan on it is a very sensible and economical option. It also keeps your savings safe and also meets your emergency need.

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