Bank FD- Most of the customers get fixed rate FD (FD) done only. The interest rates of this FD are fixed till its maturity period. The benefit of increasing the interest of banks is not available to the customers who have made fixed deposits before the increase in interest rates.
New Delhi. The Reserve Bank of India (RBI) has made a huge increase in the repo rate in the year 2022. The effect of the increase in the interest rates of the Reserve Bank has been that personal loans, car loans and home loans have become expensive. The increase in the repo rate has benefited those people who make fixed deposits (Bank FD) in banks. Banks have also increased FD interest rates after increasing the repo rate. The central bank has increased interest rates by up to 2.25% in the last 7 months. However, banks have not increased the FD rate hike in proportion to the repo rate. But, still there has been a decent increase in interest. In May this year, where SBI used to pay 5.10-5.20% interest on 1-year FDs, now it has increased to 6%.
Most of the customers prefer Fixed Rate Deposit (FD) only. For this reason, banks do not give the benefit of increased interest rates to the customers who have made FD before increasing the interest of FD of banks. Fixed rate FD interest rates are fixed till its maturity period. If banks increase the interest, then it is beneficial only on getting a new FD or renewing the FD. Now when the interest rate of FD increases, the question arises that to get more interest, should the old fixed rate FD be broken and a new FD made? Will it benefit you? There is no straight answer to this question. But, if you look at some things, then you will know whether breaking the FD will benefit or harm you.
Maturity of ongoing FD
First of all, definitely check that when your FD (FD Maturity) is maturing. If your FD is maturing in the next 6 months, then breaking the ongoing FD and investing again in another FD will not be a beneficial option for you. This is because the interest on FD is compounded on an annual basis.
Pay attention to the penalty
You must also see how much penalty you will have to pay for breaking your FD before maturity. Most banks charge this penalty at the rate of 0.50-1%. Banks will give you the total amount only after deducting interest under penalty if you break FD before maturity. This can cause you loss.
How much interest will be received?
Before breaking the FD, it is also necessary to see what re-investment options you will have if you withdraw the money prematurely. Will there be so much additional interest in these options, which is more than the existing FD rates and penalty. If this does not happen then the FD should not be broken.
Pay attention to tax also
Interest received on FD deposit comes under income tax. While calculating the net yield, you should assess the tax applicable on it. Suppose if you come in 30% tax slab, then you will have to pay tax on FD accordingly.
