since may Till date, the Reserve Bank has increased the repo rate by 2.35%. As a result, most of the banks have increased the interest rate on deposits several times. Due to this, the rate of interest on three-year normal FD has increased from 6.25% to 7.90%. At the same time, many small finance banks are giving interest ranging from 7.25% to 9.26% on FDs to senior citizens. Whereas, interest is still being received on old FDs at the rate of 5.10% to 5.20%. In such a situation, is it a profitable deal to break the old FD and make a new FD? Let’s know what the experts say…
It is not right to break FD near maturity
Financial experts say that if there is 6 to 9 months left for the old FD to mature, then breaking it and making a new FD will not be a profitable deal. Banks charge penalty for breaking pre matured FDs. Along with this, you also suffer loss of interest. If these two are calculated, then there will not be any significant advantage in the old interest rate and the new interest rate. Yes, if you have made an FD immediately, then breaking it and doing it at an increased interest rate will be a profitable deal.
Calculate the advantages and disadvantages like this
Let’s say you have an FD of Rs 1 lakh at 5.30% for one year. If you break it then you will get interest at the rate of around 4.60%. Along with this, banks will charge you a penalty of 0.50% for breaking premature FDs. In this way, you will get around Rs 4,163 as return at the rate of 4.1%. Now you invest Rs 1,04,163 in FD for 2 years at 6.75%. In this case, you will get interest of Rs 14,921. In this way you will get a total of Rs 19,084. If you compare both the FDs, you will get a marginal benefit of around Rs.1973.