If you have invested in a Bank Fixed Deposit (FD), it can prove to be highly beneficial. Not only does it earn interest, but it can also serve as a source of emergency funds without requiring you to break the FD.
This feature makes FDs highly useful during challenging times. Banks typically offer loans ranging from 90% to 95% of the FD amount.
Additionally, you can take advantage of the overdraft limit, which can be up to 90% of the deposit amount.
Lower Interest Rates and No Processing Fee
The interest rate on loans against FDs is much lower compared to personal loans. You will only be charged interest on the amount you utilize.
Furthermore, there are no processing fees associated with these loans.
Interest is applicable only to the loan amount, and if you are unable to repay the loan on time, it will be deducted from your FD amount.
FDs also offer various other facilities. If you opt for an FD for 5 years or more, you may be eligible for tax exemption under Section 80C of the Income Tax Act 1961.
However, if the FD duration is less than 5 years, taxes will be applicable.
Eligibility and Exceptions
To be eligible for a loan against FD, you need to have a salary, business, or savings account. The loan can be availed by any FD holder, regardless of whether the FD is in their name or jointly held.
A good credit score enhances the chances of loan approval but is not mandatory.
Minors are not eligible to apply for loans in their name, and loans cannot be obtained against FDs with a duration of less than 5 years.
These short-term FDs also do not offer tax benefits.
Our Thought
Almost every one has a fixed deposit account with their bank. sometimes they open it willingly other times the bank employees force them to do so. Investing in FD is not a bad option. But you should only invest if you have extra funds.
In case of emergency, you may need to break your FD to get funds. But you also have an option of taking loan over your Fixed Deposit. You get almost 80% of your FD Amount as loan. Ofcourse, lending rates will apply but you will also earn interest on your fixed deposit.
You already knew this thing or we told you first? let us know in comments below.
