The Reserve Bank of India (RBI) has repeatedly increased the repo rate. After this, banks have also increased the interest rates on fixed deposits in the last few months.
Banks have also increased the interest rates on fixed deposits in the last few months.
The Reserve Bank of India (RBI) has increased the repo rate repeatedly in the last months. After this, banks have also increased the interest rates on fixed deposits in the last few months. A two-year fixed deposit in a major government or private sector bank now fetches interest at the rate of 6.75 per cent to 7 per cent. If you are a senior citizen, you can earn more than 9% interest by choosing the right FD in a small finance bank.
About eight months back, investors were getting the lowest interest on FDs in the last two decades. In such a situation, many existing investors want to withdraw the amount of FD and now open a fixed deposit in a bank with higher interest rate. So, should you break all your old FDs and open a new FD with a higher interest rate. Let us tell about this.
keep these things in mind
There are three things you should keep in mind while breaking an FD. First, when is the maturity of your fixed deposit. Second, what is the cost of breaking the FD. That is, what interest rate is the bank offering on the reduced period and how much premature penalty you will have to pay. Third, how much additional interest you are getting on the new FD.
If the Fixed Deposit is close to maturity, then it should be considered before opting for premature withdrawal. By reducing the tenure, you will get a lower interest rate. Apart from this, you will have to pay premature penalty. So, if a Fixed Deposit is maturing in the next six months to a year, avoid tampering with it.
How much will be the loss on closing the old Fixed Deposit?
Do note that if you break your FD before maturity, banks generally levy a penalty. This penalty is in the form of reduced interest rate. It may differ from bank to bank. In banks, it can remain between 0.5 percent to 1 percent. According to experts, if you decide to break the existing FD and renew it at a higher interest rate, then you should keep in mind the penalty imposed on it. You should see what is happening to you in terms of profit and loss, after adding both the additional return and the penalty.
For example, you have invested Rs 1 lakh in a five-year FD in June 2022. Now suppose that after six months, you are breaking it at an interest rate of 4.5 per cent. Apart from this, some banks will charge a penalty of 0.5 percent for closing the FD before maturity. So, you will get interest at the rate of 4 per cent on one lakh rupees. From this investment, you will get a return of Rs.2,010.
Now you invest the entire amount of Rs 1,02,010 in a five-year FD. It is getting interest at the rate of 7 percent. So, after a period of five years, you will get a total return of Rs.39,400. (Rs 2,010 from old FD + Rs 37,390 from new FD). Had you invested the amount at the old rate, you would have got a total interest of Rs 33,036 in five years. So, by breaking your FD before maturity and reinvesting it now, you can earn Rs 6,364.
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