What would you if you are in need of quick cash but wary of rising bank lending rates? The typical knee jerk reaction would be to liquidate your assets to meet your immediate financial requirements. Think again. Experts suggest you would be better off take a loan against your fixed deposits instead of liquidating your high interest FD.
Liquidating FD vs taking a loan against FD
Most lenders will charge premature withdrawal penalties in case of liquidation of a fixed deposit. The penalty charged is usually 0.5 to 1% for the period the deposit is with the bank. In most cases, banks do not charge processing fees for personal loans taken against fixed deposits.
Standalone personal loan vs personal loan against FD
Personal loans have higher interest rates since they are unsecured as compared to personal loans taken against fixed deposits, which typically have lower interest rates, since they have the underlying deposit as the collateral. Getting a personal loan against a fixed deposit can be a good move in terms of your financial planning for the following reasons
Provides funds during a liquidity crunch for the short-term.
Cheaper than personal loan or credit card loan in that your fixed deposit continues to earn interest, while the loan only costs 100-200 bps or just 1-2% above your FD rate. (Government-owned banks usually charge 100-150 bps above the deposit rate while private banks charge 200 bps above the deposit rate)
Customers can avail of overdraft facility (withdraw more than the deposit) in many cases. All banks do not offer both loan and overdraft facilities. For instance, while ICICI Bank offers both facilities, ING Vysya Bank offers only the overdraft facility.
Many banks usually do not charge any processing charge since there is no risk involved.
In most cases, there are no prepayment penalties.
Terms and conditions
Most banks usually offer 90 per cent of the value of your fixed deposit as the loan amount. For example, if you have a fixed deposit of Rs. 1 lakh with a bank for a tenure of two years, the bank would offer 90% of the amount as loan. The bank would lend you more money factoring in the interest accrued on your fixed deposit for two years. The loan can, therefore, be taken for any duration except that it should not exceed the tenure of the deposit.
Most banks offer personal loans at an interest rate ranging from 16% to 24%. However, if you take a personal loan taken against a fixed deposit, you typically pay just 1% more than the rate of interest payable on the fixed deposit. For instance, if a bank charges 8% interest on a fixed deposit, the rate of interest payable on the personal loan raised against it would be 9%.
A personal loan against fixed deposit involves simple documentation. You have to produce the following documents as notified by the bank
Demand promissory note
Most banks usually do not charge prepayment penalties for personal loans against fixed deposits. However, some banks do charge a small processing fee. Nevertheless, preferred customers, in some cases, may get half of their fees waived if their bank chooses to do so.
Banks may offer a flexible repayment plan, wherein loan can be paid either in instalments or in a lump sum. Customers can also choose to repay a fixed amount every month. In some cases, banks ask customers to pay interest on a monthly basis. In many cases, customers can settle the loan at the time of the maturity of the fixed deposit.
The borrowed amount plus interest should not exceed your deposit, failing which, you will have to repay the amount. Similarly, the tenure of the personal loan should not exceed the residual tenure of your fixed deposit.
Customers who have a long standing relationship with their bank can avail of the overdraft facility which provides more liquidity for the short term. The customer pays interest only for the time he or she availed money from the bank.
In case of a default, the bank may choose to foreclose the fixed deposit to recover the loan amount.
Banks offering personal loans against fixed deposits
ING Vyasa Bank
Points to Remember
Money should be free from lien or encumbrance
Deposit should not be in a minor's name.
If the deposit is under the joint name of both husband and wife, all holders of the deposit are liable to repay the loan.
Although taking a personal loan against your fixed deposit is easier compared to a standalone personal loan, tread with caution and don’t go overboard. If you don’t repay your loan on time, you will lose your fixed deposit (banks may foreclose the fixed deposit to recover the loan amount). Consequently, your CIBIL score will take a beating.
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I have invested some money as a Fixed deposit in HDFC Bank and the interest rate is not that much great because they are giving interest as compared to others. I have invested the money of Rs. 3L and there is a locking period of 5 years. Its 7% interest rate. If they are increasing the interest rate, it would be fine. Since I do all my transactions with this bank, I have selected same for my FD as well.
I have chosen my fixed deposit scheme from State bank of India because I'm maintaining my salary account with them and they provided rate of interest is fine for me. I have invested the money of Rs. 2.75 lakhs. There is a locking period of 45 days. They are giving interest rate of 4.5%. Overall, I'm satisfied with their services.
I have been investing the money of Rs. 3 lakhs for the fixed deposit. I have selected Kotak mahindra bank for the FD because their net banking facility is very different when i compared to other. I can access everything regarding the account hence its easy to handle the transactions. I'm not sure about the interest rates. 7 months before, i have invested the money.
Its because of the competitive interest rates, i have selected the Fixed deposit in Kotak Mahindra bank. I have invested the fixed deposit 1.5 years ago and there is a lockin period of 5 years. They have invested the amount of Rs. 7.5 % and the employees are helpful in the branch.
I have a Fixed deposit in Axis bank. I have invested the money of Rs. 10000 for two FDs. There is a lockin duration of 1 year. They are giving a interest rate of 7%. Through net banking, i have activated this Fixed deposit. There is no tax benefits available. Axis bank service has been good. Overall, I'm happy about their services.
Since last 15 years, i have a account with Oriental bank of commerce thats the reason i have invested the money in fixed deposit with the same bank. I have invested the amount of Rs. 11 lakhs. They are giving the interest rate of 6.5%. There is no locking period but i have chosen the duration of 1.5 years. There is no additional charges deducted for this fixed deposit.
Interest rate is very low in Indian post office Fixed deposit scheme because they are providing only 8.5%. I have chosen this office because of the child benefits. I have invested the money of Rs. 1.5 years. Its 3 years lock in period. Overall, I'm satisfied with the service provided by post office employees.
I have invested the money in SBI for a fixed deposit and based on my wife recommendation i have chosen it. They are providing the interest rate of 7.25%. They have option to select the lock in period in that i have chosen 5 years. We had visited their branch and the response was good.
Its easy accessible and to redeem so that i have invested the money in Fixed Deposit with HDFC BANK. I have invested the money of Rs. 2.5 lakhs and they have provided me a interest rate of 7.5%. There is no locking period. I didn't got any additional charges till now.
I have paid the money of Rs. 4.5 lakhs as a fixed deposit in the Indian post office. For the safety purpose, i have chosen the post office account. They are offering me a interest rate of 7.9%. There is a lockin period of 5 years. If i withdraw the money in 1 year, they will reduce the interest rate of 2% and after 3 years, its 1%.
Interest rates are less in Central Bank of India so I had taken a fixed deposit. I have invested the money of Rs. 1 lakh in my wife's name. Branch is near from my place so I have chosen this bank. Yearly once, I get the money of Rs. 6,765 for the interest. There is a locking period of 1 year.
I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
I have opt for fixed deposit for the tax saving purpose because I have chosen five years tenure with AXIS Bank, still its going on. Only once I Invested my money it has the locking period of five years. I have option to check my transactions through mobile app. But I have concern about the interest rate is very lesser for this FD.
I had fixed deposit with SBI then I withdrawn the amount, I done Rs. 3 lakhs of investment on my daughter name then I taken the liquidity to purchase the land, at the time I struggled a lot to take that money because the process was difficult to withdrawn the money after seven months of tenure.
I had a Fixed Deposit with Union Bank of India and its closed 18 to 19 months due to personal reasons. I am doing investment but my experience is not good with FD account. In my home town, there is no other banks so just decided to go with this bank. The returns are good.
I have one FD with HDFC, I deposited Rs. 1 lakh, I was opt for 45 days of tenure. Finally I got 6.25% of interest for 45 days. It won't cover the tax, if we need tax benefits we should go for five years term. I can track the details through netbanking, on the maturity date the amount credits automatically in the account. Even the notification can customized.
HSBC staff wrongly pre closed my fixed deposit .. and calculated the interest rates wrongly and when asked them for clarification never got back .. even after following up with them repeatedly for more than 3 months.. would highly recommend not using their services.
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A V kumar
Reviewed on Aug 24, 2019