Why You Shouldn't Break Your FD Prematurely

Posted in Fixed Deposits By Friyana Munshi - Jan 12,2023
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When finances are restricted and an emergency is knocking on your door, it can be scary. It is a struggle to gather funds to deal with the urgent situation. Whether it be urgent hospitalisation or educational costs, the expenses are huge. Liquidating your assets is a great call in the given circumstances. But it is also vital to consider all your options before going ahead. If you are considering breaking an FD, think again. 

Rising repo rates and the constant hike in fixed deposit rates have tempted many to save money with an FD. This traditional monetary instrument provides stable and secure returns at fixed rates in a specified timeframe. You might have invested large sums of money in such deposits as well, awaiting the gradual overall growth of your funds. 

So, why should you not liquidate your FDs

One of the primary reasons to avoid breaking your fixed deposit is the additional charge. A premature withdrawal leads to a penalty ranging from 0.5-3% of the offered interest rate. Let’s understand this with an example. Imagine you deposited ₹1 Lakh for 10 years in an FD at a 5.5% interest rate. At maturity, you are likely to get ₹1,72,677. However, let us assume that you break your FD in the 4th year due to an urgent requirement. If the penalty on premature withdrawal is 1%, your returns will drop from 5.5% to 4.5% as per the shortened tenor. A penalty of 1% will be applied to the amount received after the aforementioned deduction.  

With this, you lose money that you could have gained with the deposit. Finding a smarter and better alternative is essential to avoid this. Preventive measures like building your emergency fund or getting other liquefiable assets can help. But in case it is unavoidable, here are some things you can do to gather lumpsum amounts in an emergency. 

Alternative solutions:

1. Divide and conquer

An efficient way to save in FDs is to divide your lumpsum amounts into small portions and deposit them in separate FDs. This is a much better option than depositing the entire amount into a single FD. With this, you aren’t reliant on a single fixed deposit for your smallest of requirements. If you need a small amount, you can break one of these small FDs while not disturbing the rest of your funds, which continue to grow gradually. 

2. Get a loan with FD as the collateral

It is possible to get credit without a good credit score. Shocked? But it is the truth! You can get a loan to fulfil your urgent requirements, like payment of hospital bills or immediate cash funds, by simply getting a loan against your FD. Under this, a maximum of 90% of the deposit amount is offered as principal loan amount. Moreover, the interest rate on such loans is usually lower than other loans. Drawing a loan with FD as the collateral becomes a great option when looking to raise short-term funds. 

 3. Get a credit card and pay the bills

Emergencies wait for no one, not even your financial situation. But rather than breaking your FD, a better way to get funds immediately is a credit card. If you urgently need a new credit card and your credit score is not up to the mark, don’t worry! You can opt for a credit card against your FD. With this you won’t even have to pay additional interest until the payment deadline and can access the money instantly. You must be careful as you will be charged with additional interest if you fail to pay back the amount by the specified due date. 


You are never out of options! Your FD is not just a way to lock in your money; if used wisely, it can get you credit during emergencies while slowly growing your funds. Whether getting a credit card or a loan, repaying your credit is vital. Repay your outstanding at the earliest to void further debt. Meanwhile, let your finances grow stably and securely with FDs! 

Looking for a good FD plan to invest in? Your search ends here! Check out the Bajaj Markets website and find a plethora of fixed deposit options from a wide range of banks and NBFCs. Don’t stall, start your savings journey now!  

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