Should you break FD or take a loan on FD? When is it wise to take which decision? Understand here

Fixed Deposit Scheme is still the choice of investors. If you invest in FD, you get guaranteed returns. Also, it is considered a secured investment. Money is invested in FD for a fixed period. If you break it before maturity, then the bank charges you a penalty for it. In such a situation, you suffer a loss because you do not get the same interest rate at which you have made the FD.

However, if you ever feel the need for money after investing in FD, then instead of breaking it, you can also choose the option of loan on FD. However, you will have to calculate when it is beneficial for you to break the FD and when it is wise to take a loan on FD.

First, understand how much loss will be incurred on breaking the FD?

According to the information given on SBI, if you break the FD before time, then you will get up to 1% less interest than the interest you were supposed to get on the FD. For example, if you have made a 2-year FD on which you are getting 6.5 percent interest, but you break it before the completion of two years, then you will get 5.5 percent interest on it. Apart from this, you will also have to pay a penalty. According to the SBI website, if you make an FD of up to Rs 5 lakh in SBI, then you have to pay a 0.50% penalty on breaking that FD before maturity. On the other hand, a 1% penalty has to be paid on breaking the FD before time if you make an FD of more than 5 lakh and less than one crore. In this way, you suffer more loss.

How much interest will be charged on taking a loan on FD?

How much amount you will get from the bank as a loan on FD depends on the amount of your FD. Usually, you get 90 to 95 percent of the FD amount as a loan. If you take a loan on FD, then you will have to pay 1-2% more interest than the interest received on a fixed deposit. Suppose you have made an FD for 5 years and you are getting 7 percent interest on it, then you will get a loan with 8 to 9 percent interest. The loan tenure on FD depends on the tenure of your FD. You have to repay the loan before the maturity of the FD against which you have taken the loan. If you are unable to repay the loan on time, then that loan is covered by the amount of your FD. Also, you can repay this loan as a lump sum or in installments at your convenience.

Break FD or take a loan against FD.

If you need 30, or 40 percent of the amount, then you can choose the option of loan against FD, this will save your savings and also fulfill your need of money. For example, if you have an FD of 1 lakh and you need 30 to 40 thousand rupees, then you can fulfill this need by taking a loan against FD and can also repay the loan easily. But if you need 80 to 90% of the FD amount i.e. you have an FD of 1 lakh and you need 80 to 90,000 rupees, then in such a situation it would be better if you break the FD in the middle by taking a little loss.