Break FD or Take Loan: When there is a sudden need of money, the first thought that comes to our mind is to fulfill that need from savings. This is because most people believe that one should avoid loans. They may be correct in thinking that, but in some cases, taking a loan can prove to be beneficial. If you have fixed deposit (FD), you need money, and are thinking of breaking your FD, then just wait. In some cases, it is right to break FD, but in most cases, you can also take a loan against FD. 

Know disadvantages of breaking FD

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Suppose you have made an FD for 2 years, on which, you are getting 7 per cent interest.

In such a situation, it is possible that the bank will be giving interest of around 6.5 per cent on 1-year FD.

Now, if you break FD, when you need money, you will have to pay a penalty of about 1 per cent for premature break of the FD.

Apart from this, some banks also charge some fees.

Even if you leave aside the fees, you will get only about 5.5 per cent interest on FD due to breaking it when needed.

If you break the FD too early, then the interest will be even less.

When taking loan instead of breaking FD can benefit

On the other hand, if you take a loan against FD, it will be cheaper than a normal personal loan.

If you are getting 7 per cent interest, you will get the loan at 1.5-2 per cent more interest on it.

That means, you will get loan against FD at 8.5-9 per cent interest.

Now you would think that in this way, you will have to pay more interest, but the good thing about it is that the savings you have made will remain safe and will continue till maturity.

This means that even though you will be burdened with a loan, you will also have savings.

You will repay the loan if not today or tomorrow, but your savings will support your future.

When you shouldn't even think of breaking FD?

Suppose you need 20-30 per cent of the FD amount, you should not break the FD at all.

At the same time, if your FD is more than 6 months or a year old, do not look at it at all.

Even if you need 80-90 per cent of the FD amount and your FD is about to mature, still try not to break FD.

In such a situation, arrange some money from somewhere else and you will definitely get a loan of up to 80 per cent on FD.

When is it profitable to break FD?

If it has been only a few months since you made your FD, you can break the FD instead of taking a loan.

Do this also when you need a lot of money.

If you need only 20-30 per cent of the FD amount, take a loan instead of breaking the FD.

Consider breaking an FD only when you need at least 70 per cent of the amount, that too when it has been started for only a few months.