When unexpected expenses arise, many investors instinctively consider breaking their fixed deposits (FDs) to access cash. However, this can lead to loss of interest and potential penalties, reducing the overall benefit of the investment. A smarter alternative is to opt for a loan against your FD, which allows you to access funds without encashing your deposit.
How It Works
Banks and financial institutions allow you to borrow money using your FD as collateral. Typically, you can get a loan of up to 90–95% of your FD’s value, depending on the bank’s policies. Since the FD itself guarantees the loan, interest rates are lower than unsecured loans like personal loans.
Benefits of a Loan Against FD
No Loss of Interest
Your FD continues to earn interest at the original rate, ensuring your investment grows even while you use the loan.
Quick and Easy Access to Funds
The loan approval process is usually fast, often requiring minimal documentation, making it ideal for emergencies.
Lower Interest Rates
Since the loan is secured by your FD, banks charge interest at a lower rate compared to personal or consumer loans.
Flexible Repayment Options
Many banks offer repayment plans ranging from a few months to a few years, allowing borrowers to choose a schedule that fits their budget.
No Prepayment Penalties
Unlike other loans, prepaying a loan against your FD usually doesn’t attract additional charges, giving you flexibility.
Who Should Consider It
This option is ideal for individuals who want temporary liquidity without disturbing their long-term savings. It’s also useful for emergencies, medical expenses, or short-term investments, where breaking the FD would result in unnecessary financial loss.
Key Takeaway
A loan against FD is a smart financial tool that provides instant funds while keeping your investment intact. By leveraging your FD wisely, you can address urgent financial needs without sacrificing interest earnings or long-term growth.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
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