In this era of continuous increase in the repo rate, the customers investing in Fixed Deposit (FD) are benefiting a lot. In the last 7 months, the Reserve Bank of India (RBI) has increased the repo rate by 225 basis points.
After this increase in repo rate, almost all big private and government banks have increased FD rates. In the race to increase FD rates, the biggest question is whether we should liquidate our old FDs and invest in new FDs?
Many small finance banks are giving returns up to 9.26%
In May 2022, State Bank of India (SBI) was paying 5.10% to 5.20% interest to its customers on FDs ranging from 1 year to less than 3 years. But on December 14, 2022, the interest rate has increased to 6.75% for the same time period. On the other hand, Small Finance Bank is giving bumper returns to its customers. Many banks are giving interest ranging from 7.25% to 9.26% to their senior citizen customers.
Keep these things in mind before breaking FD
If you want to liquidate your old FD, then you must first take care of its remaining tenure, alternative FD option and penalty after premature withdrawal.
If your old FD has less than 1 year to mature, then it may be better to hold it. Many banks charge a penalty ranging from 0.5% to 1% on premature withdrawal.
Due to which overall there is very little benefit in breaking the old FD.
