It had been almost two years since the Vermas had taken a vacation. Now, with the daughter’s board exams about to get over, there was no reason for the family to not go on a holiday. But, Ramit Verma had a problem. He had made a few investments and locked in a lot of his money. What could he do? He decided to honour the wishes of his family and set out on a holiday. To make this happen, he broke a Fixed Deposit (FD) of Rs.2 lakh. The sum was enough for the family to have a week-long, lavish holiday in Goa.

What Is the Breaking or Withdrawal of Fds?

Suppose you close your FD account before the maturity date and take the money out. By doing so, you ‘break’ the FD. The bank or non-banking financial company (NBFC) charges you a penalty for it. When you withdraw your FD, the interest payments also stop. You get the interest the fund has earned until date. Along with this, you get the FD principal. The bank or NBFC closes the account permanently.

When Does One Break a Fixed Deposit?

You should not break an FD if you can help it. It is a safe and secure savings tool that enables you to save in a disciplined manner. When you withdraw the amount before time, you do not enjoy that benefit.

People often break their FDs to fund medical or other emergencies. Sometimes, they use the money to finance weddings in the family. Some people even break FDs for investment purposes. They reinvest the money in more lucrative stocks and bonds.

What Is the Procedure for Break an FD?

Breaking an FD is an easy process. This is the day and age of online banking. So, you can break an FD by visiting the net banking app or website. You can complete the process in a few minutes with a few clicks. Or, you can visit the branch of your bank or Non-banking Financial Company (NBFC). You can submit the original documents and withdraw your FD amount. The bank or NBFC can transfer the money to your account.

Breaking an FD: What Are the Alternatives?

A good alternative to breaking an FD is taking a loan against it. Many people do not know that they can take loans against FDs. Here, the FD acts as the collateral. The investor can get a loan worth as high as 90% of the FD value almost at once. The loan tenure is equal to or shorter than the FD tenure. This is a beneficial alternative to breaking your FD. You get the money you need without any hassle. Your money remains invested and continues to earn dividends for you. You can get the loans at lower rates of interest and on flexible repayment terms. This makes them suitable alternatives to premature FD withdrawals. So, next time you need some urgent money, contact your bank or NBFC. Check the FD loan options before you break the FD.

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In a nutshell:

An FD withdrawal is a premature closure of your FD account. Breaking an FD is an option, of course. But you must exercise it with caution. FDs help you stay invested in a safe manner and get you rich dividends. So, think twice before breaking your FD. Consider taking a loan against it to meet your immediate financial needs. But suppose you feel that the FD is not earning the proper returns. Do you have a better investment option? In that case, you could break the FD. You could invest the money in the better investment tool instead. The choice is yours to make.

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