Is it ever a good idea to break an FD?
If you are thinking of breaking your fixed deposit, you first need to ask yourself if it is absolutely necessary or if you are simply being swept up by the potential of earning more.
Let us look at certain factors that affect the amount of money you have invested and the amount of money you will make from the fixed deposit.
When is it prudent to break your Fixed Deposit?
The first thing to do is to study the factors that are making you consider breaking your fixed deposit. Think logically and practically about these factors and then make a reasonable choice. If you are facing an emergency, like dealing with taking care of a family member who has had an accident, an urgent business requirement or facing a cash crunch that cannot be fulfilled in any other way, then breaking your fixed deposit is acceptable.
If you are considering breaking your fixed deposit because you aim to get more interest as per the current fixed deposit interest rate in the hope of getting more money at the time of maturity, you are mistaken. On breaking a fixed deposit, you do not get the interest stated in your deposit certificate since you are making a premature withdrawal. Also, as a penalty, you will be charged an interest of 0.5% to 1% on the amount you were supposed to receive. Thus, what you end up with us even less than the current fixed deposit interest rate.
Why is it wise to only close a fixed deposit account on maturity?
Premature withdrawal of fixed deposit would mean getting less amount of interest on your deposited account. For example, if you have invested in a fixed deposit for four years at a fixed deposit interest rate of 9% and you have to prematurely withdraw the amount in one year instead of four, you will receive the interest applicable for a year, which would be, say 6.5%. On top of this, the penalty for premature withdrawal of fixed deposit would be 0.5-1% (differing from lender to lender), so you will receive the interest at 5.5% on your deposited amount, instead of the 9% interest rate that you were supposed to receive at the maturity of the account. Investing the amount received on the premature withdrawal of fixed deposit into another fixed deposit with a higher interest rate will not make you any more than what you were to receive at the end of the first four years, if you had not withdrawn your deposit. Thus, it wise to only close a fixed deposit account on maturity.
The procedure for closing a fixed deposit account on maturity is very simple. All you need is your deposit certificate or receipt as proof or use its photocopies. If you are unable to produce this at the time of withdrawal, you can even write a letter to the manager.
Additional Read : All you need to know about Fixed Deposit
When you choose a fixed deposit, make sure that your investment is secure by checking its rating with your chosen lender and see that it gives you a good rate of interest. Investing in fixed deposits with Bajaj Finserv has various benefits like highest security ratings, an additional 0.25% interest rate for senior citizens, online access to your account, and no tax deduction at source on interest payment up to Rs. 5,000 per annum.