Need Funds? Get a Loan Against Your FD: Low Interest, Easy Process, No Need to Break FD

Often, people find themselves needing money suddenly and end up breaking their Fixed Deposit (FD). However, doing so can result in losses. If you break an FD before its maturity date, not only will you earn less interest, but you may also incur penalties.

How Much Less Interest Will You Earn If You Break Your FD Early?

If you break your FD before its maturity, you won’t receive interest at the original rate. According to information on the SBI website, if you break an FD early, you will earn 1% less interest than what was originally promised.

For example, if you invested 1 lakh rupees in an FD at a 6% interest rate for one year but break it after six months, the bank will only give you 5% interest instead of 6%. Additionally, a penalty will also be imposed.

What is the Penalty for Breaking an FD Early?

According to rules by the country’s largest bank, SBI, if a person breaks an FD of up to 5 lakh rupees before maturity, a 0.50% penalty will be charged. Similarly, for FDs above 5 lakh rupees and below 1 crore rupees, a 1% penalty will be charged for early withdrawal.

After deducting up to 1% interest (as mentioned above) and imposing the penalty based on the FD amount, your money will be returned to you.

You Can Take a Loan Against Your FD

Under this option, you can take a loan of up to 90% of the FD’s value. For instance, if your FD is worth 1 lakh rupees, you can get a loan of up to 90 thousand rupees. If you take a loan against your FD, you will have to pay 1-2% more interest than the interest you are earning on the FD. For example, if you are earning 4% interest on your FD, you can get a loan at an interest rate of 5 to 6%.

What Happens If You Can’t Repay the Loan?

If someone takes a loan against their FD and is unable to repay it, when the FD matures, the bank will deduct the remaining loan amount from it. In such a case, whatever money is left in the FD after this deduction will be given to you.

Which Option Is Right?

If your FD is worth 1 lakh rupees and you need 50 thousand rupees, taking a loan against your FD is a better option. This way, you will save your investment and fulfill your financial need. On the other hand, if you need the entire amount of the FD, breaking it early is more beneficial as you will get your money after a small penalty. Loans up to 85-95% of the FD amount are available.