Putting your hard earned money into fixed deposits is often a path that many choose to secure their financial situation for the future with. However, when you look into the dynamics of a fixed deposit account, it is money that has no use for the immediate future as it is locked up for years on end. It is just sleeping money. There are circumstances in life that compel us to take financial assistance whether we like it or not. Personal emergencies do not knock our doorstep before appearing. If we cannot handle such emergencies on our own with some emergency savings we have stashed in a hidden place, there is no choice but to take a loan. Some of us even contemplating breaking our fixed deposit accounts to manage our finances. However, have you considered taking a loan against a Fixed Deposit?
Should you take a Loan against your Fixed Deposit or Break your Fixed Deposit?
When you break your fixed deposit earlier than the maturity date, you will be imposed a penalty. What is even trickier here is that the penalty fee may be between 1% and 2% higher than the interest rate that you have been receiving on your fixed deposit. Depending on the amount that you have saved in your deposit, early termination of your account can prove to be an expensive affair.Another aspect you need to consider when deciding if you should terminate you fixed deposit account to meet your short term needs is that when the bank liquidates your deposit amount, the interest you receive on the amount, more often than not will be for the actual period the deposit account has been kept and at the least interest rate. The bank may not consider the higher interest rate you were originally offered when you had opened the account.
Therefore now you are faced with the dilemma of whether you should break your fixed deposit, pay the penalty and settle for a lesser interest rate on the amount you had earlier deposited or should you take a loan. Depending on your needs and circumstances, you need to evaluate which is the better option for you.
Taking a Loan against your Fixed Deposit as a Collateral
Taking a loan against some form of collateral is always cheaper than taking one with no collateral simply because the risk of defaulting is minimized and the bank has some consolation of recovering the debt. Loans with a collateral are even cheaper than taking a personal loan.Now that you have a fixed deposit that you have no intention of using for a while, why not use the deposit as your collateral and take a loan against it at a lower interest rate? Not only will it work out cheaper for you interest wise, you also don’t have to lose your savings in the process. It is as if you are borrowing from yourself and repaying back the amount. As this is a short term financial crisis that you are faced with at the moment, once you have handled it, you can then work towards your savings again without losing a single dollar.
Advantages of taking a Loan against a Fixed Deposit:
Low processing fees – When you take a loan against a fixed deposit, the processing fee charged is very low when compared to any other loan. There are also some banks that waive the processing fee.Less paperwork – The paperwork for taking a loan against a fixed deposit is very limited, sometimes subjected to a single form. If you apply for it through Internet Banking or Online Banking, there are chances that you may not even be required to fill out any paperwork.
Most flexible loan tenures – The biggest advantage of taking a loan against a fixed deposit is that it has no specific loan tenure. You have the option of holding on to the loan for any period of time until the maturity date of your deposit account.
No penalties imposed – As there is no fixed loan tenure for your loan, there will also be no prepayment penalties when you foreclose your loan. You can repay the loan amount at any point in time without worrying about any form of penalties.
List of Top Banks Providing Time Deposit With Best Interest Rates
- Maybank Fixed Deposit Rate
- UOB Fixed Deposit Rate
- HSBC Fixed Deposit Rate
- DBS Fixed Deposit Rate
- Citibank Time Deposit Rate
Now you can Compare Bank Fixed Deposit Rates with BankBazaar.sg and find the best one to start your investment.
