After making an FD, banks charge a penalty on premature withdrawal. We are telling you what to do to avoid this.
Fixed Deposit (FD) is the most preferred medium of investment among Indian investors. The reason for this is risk free and fixed returns. Due to this, small to big investors invest money in FD. However, uncertainties of life can come at any time. At that time investors are forced to break the FD before maturity. Banks also charge less return and penalty on breaking the FD before maturity. If you also make an FD, then we are giving you some tricks to avoid such a situation. You can reduce the burden of penalty by following them. Also, you can compensate for the loss of low returns.
Use FD laddering
Use FD laddering to avoid paying penalty on premature withdrawal. In this, do not invest the entire money in a single FD. Invest by dividing the money into several FDs with different maturity dates. By doing this, you will have the facility to withdraw parts of your funds at regular intervals. Then you will not need to break the FD before maturity.
Sweep-in facility
Many banks offer sweep-in accounts, where a fixed amount is automatically transferred to FD when it is in the savings account. This gives higher interest on the amount deposited in FD. Also, whenever money is needed, there is a facility to withdraw easily.
Loan on FD
Instead of breaking the FD before maturity, taking a loan is also a better option. Banks usually give loans up to 90 percent of the FD amount at interest rates slightly higher than the interest rate of FD. This option helps in avoiding penalty while maintaining the investment.
Make FD in government bank
If you may have to withdraw money before maturity, then you should get your FD done in government banks. In case of premature FD withdrawal, government banks usually charge less penalty than private banks. In public sector banks, the penalty usually ranges between 0.50 percent to 1 percent. Whereas, in private sector banks, it ranges between 1 percent to 1.5 percent.
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