Why breaking a Fixed Deposit prematurely is a bad idea?
Many invest in Fixed Deposits (FDs) as they are one of the safest investment options available to us. But often, when we require funds in an emergency, FDs are one of the first investments that we tend to break. As a result of which, we not only lose out on the interest rates but also incur a penalty on the maturity amount.
Consequences of premature withdrawal
- Penalties: Premature withdrawal usually involves your bank or financial institution charging you a penalty for withdrawing your FD before maturity.
- Interest loss: Interest returns are what you get on a periodical basis from the bank over the tenor period. By withdrawing your FD prematurely you are losing out on the interest gains that you could have received by completing the tenor, which could cause a financial loss for you.
- Prevention of growth: Every FD multiplies into an attractive amount over time. The longer the tenor, the more value is added to your FD. Once your initial investment grows, you can use it for holidays or purchases of assets. However withdrawing your deposit prematurely hinders this growth and you only get back the money you had invested. You would lose out on the matured amount of the FD.
- Financial uncertainty: If you are retired and have invested in FDs for higher gains, premature withdrawal can cause a considerable amount of uncertainty. You would lose out on a source of income. This would cause worries about paying bills and other rising expenses. Rather than this, taking a loan on your FD is more advisable.
- Cumbersome procedure: As most transaction procedures, even breaking of FDs comes with its own share of formalities. These formalities involve filling forms and submitting a range of documents. Only after this can you get your invested amount back.
Premature withdrawal of a fixed deposit can have an adverse set of consequences. You should thus consider these factors before making the final decision of breaking your fixed deposits.
Tips and warnings:
- Do a thorough research on the terms and conditions of your FD.
- Search for alternate modes of finance instead of breaking your FD.
- These could be taking a loan against your FD or opting for a personal loan or line of credit.
- Avoid breaking the FD at the end of the tenure period since this may incur higher penalty.
- Always have a financial backup of other FDs, shares and mutual funds to support you when you need money for emergencies.
- Keep about half of your finances liquid to help you access funds in times of needs.
Why choose Fixed Deposits:
As time passes, it becomes more essential for you to save money in safe investments. Fixed deposits are the safest option of investment. They offer you steady and attractive interest returns as income over a chosen tenor. You can benefit from a range of advantages if you keep your FDs secure until maturity. These include:
- Provide a fixed and steady income from interest gains.
- They help your savings grow and mature over the tenor.
- Ideal for senior citizens who seek income after retirement.
- Help put your savings to good use.
- Interest income can be used for various purposes like daily living expenses or buying an asset or even paying for a holiday.
Invest in Bajaj Finance FD with higher rate of interest, stability, cumulative and non-cumulative options and much more.