(Fixed Deposits) FD is definitely a good investment option; But if for some reason you have to break the FD before maturity, how can you avoid the loss?
New Delhi, Feb 5: Fixed Deposits (FDs) are a great way to earn a fixed income; However, due to the worsening situation during the Corona Lockdown, the interest rate on FDs reached a low level. If for some reason it was time to break the FD before maturity, there would be more losses. Because in such a case a penalty has to be paid. So let’s look at some ways to prevent damage.
The term of the bank’s term deposit starts from seven days and is available for a period of up to 10 years. The principal is invested in term deposits at a fixed interest rate. The investor gets increasing interest on that amount.
If the FD is to be broken before the due date, it cannot be broken without paying the penalty. Also, if you want to reinvest the amount you have in hand after meeting that time requirement, then the interest rate is likely to be lower. The interest rate on FDs is limited to that period. Against this background, it is necessary to adopt a different policy when investing in FDs. Financial Express has informed about it.
Here are some ways –
If it is time to break the FD before the due date, then instead of breaking it, you should take the option of taking a loan against FD. Many banks offer the option of borrowing on their FDs. The interest rate on a loan taken on an FD is usually one to two per cent higher than the interest rate on that FD. Of course, it varies from bank to bank. Experts say that an FD loan option may be more profitable for an investor than a personal loan. This is because the interest rates on loans on FDs are generally lower than the interest rates on personal loans. Because they have deposit security.
Investors can also use the Sweep In FD account option. Sweep-in accounts are also called two-in-one accounts or money multiplier accounts. Because it not only benefits the liquidity of the savings account, but also the interest rate of the FD. The interest rates on Sweep in FD accounts are the same as regular FDs, and investors can take advantage of savings account liquidity. There is no penalty for using or withdrawing funds from a sweep-in account.
The amount on the threshold limit in a two-in-one savings account is automatically transferred to the investor’s FD account. Also, if there is not enough money in the savings account, the money will be withdrawn from the FD account and used to make up for the shortfall in the savings account. Therefore, it is necessary to keep sufficient amount in the savings account, so that the amount in FD will not be manipulated.
Another option is the ladder approach. Under Laddering Approach, the investor invests in different maturities. This means investing in more than one product in a way that will mature on different dates. You can also invest in one, three and five year options instead of one year period. Mature FDs can also be renewed and the same method is used each time.
State Bank of India offers interest rate based on daily reducing balance on fixed deposit loans without any pre-payment penalty or processing fee. An interest rate of one per cent higher than the interest rate on a fixed deposit is charged for that loan. Some banks also offer the facility of withdrawing up to 90 per cent of the fixed deposit while adopting the Loan Against FD option.
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