Loan Against Fixed Deposit

A Fixed Deposit (FD) is one of the most popular way of investing money in India. Conservative investors prefer investing in an FD account as it is a safe form of investment that gives fixed assured returns.
 
The idea behind an FD is that you deposit a lump amount with the bank for a certain period and earn interest income on it. Once the term deposit matures, the bank transfers the principal amount along with the interest earned to the account specified by you at the time of FD account opening. Banks also give you the option of periodic interest payouts – monthly, quarterly, half-yearly and annually.
 
Money can be deposited in an FD account from 7 days to as long as 10 years. You can choose the tenure as per your convenience and investment plans.
 
The downside of an FD account is that you won't be allowed to withdraw that money for the tenure the money is with the bank. While you are not allowed to withdraw from an FD account, banks do offer liquidity options and flexible lock-in periods. While you can withdraw from an FD under exceptional circumstances, you lose out on some of the interest payout depending on the remaining time period. Also, banks typically charge a penalty for prematurely breaking a deposit account.

So what do you do if you are in urgent need of funds?
 
You can consider taking a loan against fixed deposit. A personal emergency could emerge at any point in your life. During such times, when you are in urgent need of funds, you can avail of a loan against the fixed deposit. Many lenders offer a loan against Fixed Deposit, without the need to liquidate or break your FD.

Eligibility to Avail a Loan Against Fixed Deposit:

The overdraft facility is given to customers having a valid fixed deposit of that bank

Documents Required:

•    KYC documents
•    Duly filled application form
•    Duly signed agreement
•    Fixed/Term Deposit receipts duly discharged in favor of the bank

Depending on the bank, a maximum of up to 90% of the value of your Fixed Deposit will be given as a loan. Also, the interest rates on this kind of overdraft facility is competitive, generally, 2% - 2.5% above the interest paid by the bank for the term deposit. Most banks levy zero processing charges and additionally, there are no prepayment penalties.

Loan against fixed deposit is a great option when compared to personal loans, which are generally high interest loans. Moreover, you continue to earn interest on the deposit you have made, and you continue to rake in the benefits of an FD like a tax deduction. If you are in need of money, a loan against fixed deposit can be a sensible option.