fixed deposit calculator
For decades, Fixed Deposits (FD) have remained a popular investment choice among Indian households, offering safety on the capital amount and guaranteed fixed returns. However, during a financial crisis, it may be necessary to break the FD before the date of maturity in order to access the funds. This process of withdrawing funds from FD before maturity is called a premature withdrawal, and it comes with its own sets of advantages and drawbacks that must be considered.
Pros of premature withdrawal of FDs
Offers financial assistance in tough times: The most significant benefit that comes with premature withdrawal is that it offers access to funds quickly during unforeseen circumstances. Whether it is a medical emergency, job loss, or any other financial crisis, the ability to prematurely break your FD provides a valuable financial backup.
Reinvesting into a better FD: Fixed deposit interest rates can fluctuate over time depending upon a variety of factors. If the FD interest rates increase significantly after you have locked in an FD at a subpar interest rate, it can be a wise idea to break the FD prematurely and invest in higher-interest FDs, as they can offer better returns in the long run. You can use a fixed deposit calculator to understand whether to continue your FD or break it and reinvest for better returns.
Paying off debt: Another justifiable reason for premature fixed deposit withdrawal is to pay off debt, especially high-interest debt. Paying off high-interest debt such as credit card dues and personal loans can help you save significantly on interest payments, thus improving your overall finances in the long run.
If you want to open a new fixed deposit or break your FD to reinvest for better returns, consider the online fixed deposits offered by IndusInd Bank. The IndusInd Bank Fixed Deposits offer a variety of features and benefits, such as:
● Book your FD online in just 3 simple steps using video KYC
● Earn best-in-class interest rates for higher returns on your investment
● Auto-renewal option along with multiple interest payout options
● Book a 5-year tax-saver FD to help save on taxes while earning interest income
● Manage your FD easily using IndusInd Bank’s IndusMobile app
Cons of premature withdrawal of FDs
Penalty on interest: The primary drawback when it comes to early withdrawal of fixed deposits is the penalty on interest earnings that are imposed by the bank. Generally, the bank will deduct around 0.5% to 1% from the applicable interest rate in the form of a penalty, resulting in reduced earnings, especially if the FD is closer to maturity.
Losing compound interest: When it comes to long-term FDs, breaking them prematurely will not only result in a penalty on the interest but also disrupt the compounding process, which can result in significantly reduced returns over time.
Financial imbalance: Many people use fixed deposits for specific milestone financial goals, such as saving up for a home down payment, saving up for kids’ education, etc. Breaking FDs prematurely results in these plans getting derailed or delayed, messing up your financial planning.
Key considerations
Here are some things to consider before breaking your FD prematurely:
● Many banks offer loans against FD, so check if you can get a loan against an FD to take care of your financial needs without prematurely breaking it.
● Some banks also allow depositors to partially withdraw from an FD. If you only need a small amount of money compared to your FD, consider withdrawing the necessary funds while keeping your remaining investment intact.
● Consider building a separate emergency fund to deal with emergency expenses so that you do not have to prematurely break your FD.
To conclude
There are both pros and cons to prematurely withdrawing funds from a fixed deposit. While it offers quick access to funds in the short term, the costs in terms of reduced returns and missed long-term growth can be substantial. So, it is important to weigh the immediate benefits of breaking your FD against the long-term impact on your financial goals. Only after careful consideration should you choose to prematurely withdraw funds and for a justified purpose.
