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What Happens When You Withdraw From Your FD Prematurely

A good investment strategy includes a healthy mix of risky and safe investment tools. Among the safe tools, Fixed Deposits (FDs) are most popular among Indians. With an FD, you invest a lump sum and that money grows through a predetermined rate of interest over time. Keeping your FDs secure and untouched boosts your savings steadily.

Withdrawing an FD prematurely

While allowing an FD to mature gracefully over time would be the ideal situation, sometimes an unforeseen emergency might push you to premature closure of fd . This could result in a few pros and cons that you should know about.

Pros

Though there are penalties on interest for premature withdrawal of your FD, you get the complete amount you deposited. This money helps you handle the emergency at hand.

Cons

A premature withdrawal of your FD affects the interest rate for the time the FD was held. You will now get a lower interest rate. The bank or financial institution is likely to deduct 0.5% to 1% from your interest rate as penalty charges.

For instance, Kunal invested Rs 1 lakh in an FD for a year at 9% interest rate p.a. However, the interest rate for 7 months was 6%. Due to his mother’s health issues, he had to break his FD at 7 months and 3 days. If he had continued his FD, he would have got Rs 9000 as interest at the end of the year. But, since he withdrew prematurely, his interest rate not only dropped to 6% but he had to also suffer an additional penalty of 1%. Now, he stands at receiving only Rs 2500 as interest at the rate of 5%.

Instead of enduring such loss of money due to premature withdrawal of FD, he could’ve chosen to take a loan against the FD to tackle the emergency.

However, this too comes with its own pros and cons.

Pros

* You get the option to repay the loan with interest with the F

D’s money at maturity. Although, there might be some lenders that insist on the interest being paid regularly, while the principal amount can be settled post-maturity.
* Since it is a secured loan against the FD, there is minimal paperwork.
* You could get the loan sanctioned within a day.

Cons

* The loan tenor cannot be more than the tenor of your FD.
* You don’t get to choose the tenor or the loan’s rate of interest.
* Until you repay the loan, you can’t close your FD.
* If you are unable to repay the loan, the lender will settle it by closing the FD and claiming the amount from it.

Conclusion

When you are faced with an emergency, choose wisely between breaking your fixed deposit and taking a loan against it. Ideally, the loan is a better way to go as it gets you money without affecting your FD or its interest rate. If you’re still confused, there are fixed deposit premature withdrawal penalty calculators available to help know your loss and decide accordingly. The another option is that you can also choose short term fixed deposit which lessen the chances of withdrawing FD before maturity.

To know more about how a premature withdrawal of your FD can affect the interest you earn, click here.

If you ever need a loan for an emergency, you could also take one from different lenders. You can also continue with Bajaj Finserv as they offers a host of financial products to help you make all your money-oriented decisions. They offer pre-approved loans, should you ever need it. All you have to do is share a few details and check out your pre-approved offer.

Summary

Breaking an FD can have adverse effects on your interest and brings with it some losses too. Unless you really need the money, think hard before you make your choice. There are loans against FDs also available which are a much-preferred alternative to breaking FDs. You can use a fixed deposit premature withdrawal penalty calculator to help you make your decision.

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Managing Your Savings and Investments Before and After Retirement

Planning your investments starting from when you are young will make sure that you are able to manage your finances throughout your lifetime. While you have a steady source of income through your salaries or business income before retirement, you would want sources of income and income maximization once you are retired. While FDs are the easiest investment options available, there are several others, which, if utilized and optimized could offer attractive returns. Several investment options for senior citizens are available to invest after retirement.  

It is advisable that before your retirement, you invest in schemes that offer diverse returns in the short-term as well as the long-term period. When you are young and have a steady flow of monthly income, it is highly recommended that you invest in schemes that will continue to offer returns post-retirement as well. Even though fixed deposits for Senior Citizens are the most preferred investment option, several others are beneficial and provide steady returns.

Given below are some of the significant and profitable investment options that you can consider for managing your savings and investments before and after your retirement:

Investment Options before Retirement

Mutual Funds

Mutual Funds are an ideal investment option for you when you are looking to build a retirement corpus early in your life. Since this option invests your funds in diverse securities,  the risk is lessened, and you can look forward to higher returns. This way, you can start investing with lesser funds and get more time to save for your future. It is also the preferred options for youth,  who can take risks in investment and have an opportunity to yield higher returns in a shorter time period as well.

Public Provident Fund (PPF)

Offering you attractive returns and interest rates, PPF is a popular scheme backed by the Government of India. One of the main benefits of going for PPF includes exemption from taxes. Availing facilities like loans and withdrawals are made more accessible by investing in this scheme. You can invest any amount ranging from Rs. 500 to Rs. 150,000 every year. The amount deposited in PPF account is available as deduction from your Net Income under section 80C of Income Tax Act, 1961.

Investment Options after Retirement

Senior Citizen Savings Scheme (SCSS)

SCSS is one of the most preferred investment option for senior citizens and early retirees for a good reason. SCSS currently provides the highest tax-exempted returns as compared to other similar schemes for senior citizens. In this scheme also, the investor can get tax benefits under Section 80C.

Fixed Deposits

Fixed Deposit investment is a favourite among the Indian audience. FD Interest rates are usually desirable, guaranteeing minimal risk, which makes it one of the safest investments out there. There are special FDs for Senior Citizens as well, which can be beneficial in multiplying savings after retirement. You can use the FD Calculator to help you choose the best FD according to your preference and need.

NBFCs like Bajaj Finance provide FDs with a higher interest rate compared to the banks. Moreover, the flexible tenor options make Fixed Deposits by Bajaj Finance, one of the most touted investment options among senior citizens. There are also other features such as online account management, easy withdrawals, and convenient foreclosure options, which can make it very easy for you to manage your transactions and payments.

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How to Fulfil your Dreams with the Best Investment Options?

All of us have dreams and personal goals that we relentlessly pursue. At times, our goals may appear to be too far-fetched or even unattainable. They may appear to be too expensive and beyond our reach, financially. By exercising financial discipline and making wiser investment decisions, we can have greater control over our financial future and fulfil many of our financial goals.

The key to financial success is in being aware of the various investment options available in the market and choosing the most suitable ones. Among the various investment options available to make dreams come true, fixed deposits score over others because of these features:

 

  • Safety of your Investment

 

An investor needs to be sure that his investment is in safe hands. A fixed deposit has been a preferred financial instrument as far as the security of your investment is concerned. Apart from FDs offered by banks there are several NBFCS that have entered the market with similar products.

For instance, Bajaj Finance Fixed Deposit not only gives you high returns on your investment but also offers flexible tenors to meet your liquidity needs. You can get an FD interest rate of over 8% on Bajaj Finance Fixed Deposit, which is higher than the market average.

Bajaj Finserv also offers pre-approved loans, cards, insurance and EMI Network offers to help you fulfil your financial needs. Click here to discover your pre-approved offer.

 

  • Guaranteed Returns

 

An FD offers you guaranteed and predictable returns. Using an FD calculator, you can determine the exact amount that will be available to you at maturity. Though bank FD interest rates have fallen in recent months, there are several corporate FDs that offer you attractive returns.

 

  • Liquidity

 

If you need money periodically, you can opt for a non-cumulative FD and withdraw the interest amount as periodic payments. You can choose a monthly, quarterly, half-yearly or yearly scheme based on your requirement.

If you opt for a cumulative FD, the interest amount will be re-invested in to your capital and will generate higher returns.

 

  • Availability of Loans

 

Most banks and financial institutions offer loans against FDs. The amount of the loan usually hovers around 70-90% of the FD amount. There is no processing fee on such loans and the procedure for availing these is very simple. The interest on these loans will be 2-2.5% higher than the interest rate that you get on the FD. You will, however, continue to earn interest on your FD.

The repayment can be done in convenient EMIs and the bank does not charge any penalty in case you pre-close the loan. Loan against FDs can help you tide over financial emergencies in your life. Very few financial instruments give you this kind of flexibility.

 

  • Ease of Operation

 

An FD is convenient and easy to operate. Most banks and NBFCs offer customers the facility to login to their websites and create FDs online. You can track your investments on a real-time basis and make any change that you may want. Pre-closure of FDs can also be done online, and the money would be automatically credited to your savings account.

Traditionally, fixed deposits have been the most preferred savings instrument in India. With NBFCs and other companies entering the market, today you have several options to choose from. FDs offer a lot of flexibility and convenience while guaranteeing the safety of your money. It is one of the safest investment options available today.

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Top Investment Plans for Senior Citizens

Retirement is a phase of life that everyone looks forward to living comfortably. Individuals start planning for their finances early or at least before the retirement phase peeps in. There are various concerns when doing investment planning post-retirement. The major challenge is that the source of income is limited and the options for taking risks are less. Despite that, one needs a surplus amount to meet their sustenance needs.

Hence, it is advisable to look carefully for investment options based on your post-retirement financial goals and needs. If you are a senior citizen or on the verge of retiring, you may consider investing in schemes below.

1.Senior Citizen Savings Schemes(SCSS)

The scheme is specially tailored to meet the financial needs of senior citizens and hence should be considered as a part of your investment portfolio. The primary criteria to be eligible for the scheme is to be above the age of 60. It can be availed from any bank or post office. The maximum investment allowed in this scheme is of Rs 15 lakhs at the interest rate of 8.3% annually, which is reset every quarter. The scheme is covered under tax benefits of Section 80C up to Rs. 1.5 lakhs.

However, the investment is locked in for five years, which can be extended further up to 3 years. You can make premature withdrawals in this scheme. For early retirees, the funds should be invested in SCSS within a month of receiving the retirement funds.

  1. Fixed Deposits

Another popular choice for senior citizens when it comes to investing is FD. In case of fixed deposits, banks, as well as financial companies, offer competitive interest rates to senior citizens. FDs score high on safety and security of funds with a good amount of returns. FD’s with longer tenure have higher gains and benefits, but you can also invest in it for short-term needs.  Unlike other schemes, FD provides flexibility to invest in tenure ranging from 7 days to 10 years. Moreover, with Bajaj Finance, senior citizens get an opportunity to avail 8.20% interest on their investment as compared to other investment options.

  1. Post Office Monthly Income Scheme(POMIS):

POMIS is a five-year investment scheme by Indian Post where an individual can invest up to Rs 4.5 lakhs and Rs. 9 lakh in a joint account with a minimum investment starting at Rs 1500.  The interest rate offered in this scheme is 7.8% annually, which is payable monthly and is fixed for a maturity period of up to five years. Though this scheme does not qualify for any tax benefits, it is considered to be ideal and safe investment scheme for senior citizens offering higher yields with stable returns.

  1. Mutual Funds

Mutuals funds signify risks, though this option is known for their higher returns on investment when invested in right equities. The interest may go as high as 20% in mutual funds with the associated risk factor. So, it is always advisable to start off with investing in low risk mutual funds and then move on to higher risk high-performance mutual funds. Depending on risk profile, one may consider investing a percentage of their funds into equity mutual funds(MFs) due to their nature of high returns. While you take risks, one way of reducing the risks is to diversify the investment portfolio across a variety of industries. Debt funds are another good alternative for senior citizens due to their obvious liquidity.

  1. Tax Free Bonds:

Bonds are securities issued by government-backed companies or projects like Indian Railway Finance Corporation, Power Finance Corporation Ltd or National Highway Authority of India to raise finances with reasonable interest rates. The interest earned on these bonds gets credited to bond holder’s bank account. One can also trade these tax-free bonds as they are listed as securities on the stock market.  Currently, tax-free bonds of top rated public sector companies on an average offer a yield of 6.4-6.5 percent. As the investment period is longer ranging over 15 years or more, one must plan in advance to include tax-free bonds as a part of their retirement plan.

The last thing you want to worry about post-retirement is the shortage of funds. Hence it is best to plan and opt for the best investment plans that suit your needs. A right investment planning boosts your income but can give you the perks of retirement life that everyone hopes.

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