Should you preclose your current FD for better rates?
By Neelima Shankar
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If the new FD is offering such high interest that all penalty and loss of interest income is overshadowed, then the customer can go for it. But in case the interest rates have risen by say X% and penalty on preclosure is also X%, then there is practically no gain coming to the customer.

Many times people get attracted towards company fixed deposits as they offer higher interest rates than bank deposits. However, they are a riskier proposition as against the safer bank deposits. The first thing that needs to be noted in a company FD is the credit rating given to the company by major rating agencies like CRISIL and ICRA. Credit rating in a way indicates the financial health of the company and thus portrays its capability to pay interest and principal.

Usually, higher the rating, lower is the return offered by a company. Companies with lower rating often offer higher returns so as to attract more customers. AAA rating usually matches bank deposits in terms of safety and financial soundness.

Bank deposits are all the more secured as all deposits up to Rs 1 lakh are covered by Deposit Insurance and Credit Guarantee Corporation (DICGC).

While customers get allured by the high rates offered by fixed deposits, it should always be kept in mind that interest income in FDs is taxable. So whatever interest income is earned in the book of accounts is not fully realized by the customer.


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(Comments Posted : 3) Post Your Comments
1. In INDIAN BANK with Chennai as head quarters, their term deposits bears a condition that for deposits with in Rs5 lacs, run for a period of minimum 6 months, there will be no penal interest for foreclosure and interest for the period actually run will be paid. This is a condition in their FD scheme as seen in their website.
v.krishnamoorthy (Posted: Apr 22, 2017)
2. All people deserve good life time and home loans or just auto loan will make it better. Because people's freedom relies on money.
Charles18Stacey (Posted: Jan 29, 2011)
3. Apart from the stated obvious, it would be far more beneficial if a computation of the loss on premature closure of FD can be computed through a online developed calculator.
Alikban (Posted: Jan 15, 2011)
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