Investments: Breaking fixes deposits early

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An alternative to breaking a fixed/term deposit is taking a loan against a fixed deposit. An alternative to breaking a fixed/term deposit is taking a loan against a fixed deposit.
SummaryIn an emergency, when you need a large sum of money, only solution could be breaking FD prematurely.

deposit has been held by the bank. The rate of interest prevailing on the date of re-investment of fixed/term deposit will be applicable for the new term deposit as well.

One should resort to premature withdrawal of an FD only in extreme cases. Lenders like Axis Bank provide flexi options on significant features like tenure, payment instructions, maturity instructions, principal, rollover principal, etc.

However, if the term deposit is close to maturity, it is recommended that you continue with it and reinvest the amount only after maturity. Consider breaking an FD only when it is relatively new.

An alternative to breaking a fixed/term deposit is taking a loan against the FD, in which case the net rate of interest is simply 1-2% on the loan. This makes it much cheaper than a personal or a credit card loan. However, under no circumstances can the tenure of the loan exceed the term of the deposit. In fact, certain banks clearly specify that they can use any other deposit of the investor to settle the dues of the loan in case of default.

The writer is CEO of BankBazaar.com

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