In today’s time, despite having good options like SIP, people’s interest in Fixed Deposit (FD) is still intact. If you invest in FD, you get guaranteed returns, due to which it is considered a secured investment. Money is invested in FD for a fixed period of time and if you break it before maturity, the bank charges you a penalty for it. In such a case, you have to bear a loss because you do not get the same interest rate at which you made the FD.
So if you ever feel the need of money after investing in Fixed deposit (FD), then instead of breaking it, you can also choose the option of loan against FD. However, you will have to calculate when it is beneficial for you to break the FD and when it is wise to take a loan against FD.
How much loss is incurred if FD is broken midway?
According to the information given on the official website of SBI, if you break the Fixed deposit (FD) before time, then you will get up to 1% less interest than the interest you were supposed to get on the FD.
For example, if you have made a 2 year Fixed deposit (FD) on which you are getting 6.5 percent interest, but you break it before the completion of two years, then you will get interest at the rate of 5.5 percent on it and apart from this, you will also have to pay a penalty.
On the SBI website, it states that if you make an investment up to Rs 5 lakh, you will be penalized 0.50% if you break the FD before it matures. However, if you make an Fixed deposit (FD) of more than 5 lakh but less than 1 crore, you will have to pay a penalty of 1% for making the payment before the deadline. This causes you to lose more in the long run.
How and how much interest can be earned on FD?
The size of your FD determines how much money you will receive as a loan from the bank. Typically, you receive a loan equal to 90–95 percent of the FD amount. You will pay one to two percent more in interest on a loan taken out on a fixed deposit (FD) than you would on a regular savings account.
Assuming you have a five year old fixed deposit account (FD) earning seven percent interest, you will receive an eight to nine percent interest loan. The length of your FD determines the loan term on FD. Before the FD against which you obtained the loan matures, you must return the loan.
The amount of your Fixed deposit (FD) is used to fund the loan if you are unable to make the repayments on time. Additionally, you are free to return this loan in full or in installments at your discretion.
Break FD or take loan against FD in SBI?
You can select the loan against Fixed Deposit (FD) option if you require thirty to forty percent of the total; this will preserve your savings while also meeting your financial needs. For instance, if you have a one lakh rupee savings account and you require thirty to forty thousand rupees, you can satisfy this requirement by taking out a loan against your savings account, which you can also easily repay.
However, it would be preferable if you took a small loss and broke the FD in the middle if you needed 80–90% of the FD value, or if you had a 1 lakh rupee FD and needed 80–90,000 rupees.
How to get loan on Fixed Deposit (FD) in SBI?
- Login to SBI Net Banking
- Select e-FD option from the menu section?
- Select the option “Overdraft against FD”
- Select any one of the active FDs from the list and request to apply for overdraft
- Select “Proceed” and verify the overdraft amount, applicable overdraft interest rate and expiry date.
- Enter your registered mobile number and password.
- With this the process of applying for loan against FD is completed.
The loan amount is credited to the account within a few days of application. The money will be transferred to the account linked to the FD. This is a very easy way to avail a loan and does not require any paperwork.
