Loan Against FD vs Premature Withdrawal: Monica Malik Shares A Smarter Money Move

Many people turn to their fixed deposits when they need money urgently. While withdrawing an FD may seem like the easiest solution, it often comes with a hidden cost. Premature withdrawal can reduce the interest earned and may even attract penalties, affecting your long-term savings goals.

Finance influencer Monica Malik recently highlighted a lesser-known alternative that can help investors access funds without disturbing their investments: a loan against a fixed deposit.

What Is A Loan Against FD?

A loan against FD allows individuals to borrow money by using their fixed deposit as collateral. Instead of closing the FD before maturity, the deposit remains intact while the bank provides a loan against it. This means you get access to funds during an emergency while your investment continues to earn interest. Many banks offer this facility, making it a convenient option for short-term liquidity needs.

Why It Can Be A Smarter Choice:

One of the biggest advantages of a loan against FD is that it helps preserve the benefits of your investment. When an FD is broken prematurely, investors often lose out on the interest they would have earned until maturity. By opting for a loan instead, the deposit continues to generate returns. It also eliminates the need to start a new FD later at potentially different interest rates.

For individuals facing temporary cash crunches, this option can provide financial flexibility without disrupting long-term savings plans.

How Does It Work?

The process is typically straightforward. Banks generally offer a percentage of the FD value as a loan, depending on their policies. Once approved, the amount can be used for various personal needs, such as medical expenses, education costs, home repairs, or short-term emergencies. The FD remains active throughout the loan tenure, and investors can continue earning interest on it.

Things To Keep In Mind:

While a loan against FD can be useful, borrowers should compare interest rates, repayment terms, and loan charges before applying. The facility is best suited for temporary funding requirements rather than long-term debt.

As Monica Malik points out, breaking a fixed deposit should not always be the first response to a financial emergency. Exploring a loan against FD could help you access the money you need while keeping your savings strategy on track and allowing your FD to continue growing.

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