Loan against FD - worth it?
Bank FD rates have gone up as of this writing. It is possible that some of us have FDs created 1 or 2 years ago, which offer much less interest rate than that being offered today. Sometimes, the difference could be 2% or more. In this case, a natural question that could arise is whether one should take loan against the existing low-rate FDs by paying 1% additional interest and create new FDs from the loan disbursed? For example, I had an FD that gave 6.25% interest. Currently, there are FD options that offer rates as high as 8.25% (for senior citizens). Loan could be availed on the existing FD at 7.25%. So, one can be tempted to take a loan at 7.25% and create an FD out of it that offers 8.25%. You get 1% more even after paying the loan interest. Is there any catch? Y es - there is. You must factor in the tax that ought to be paid on the new FD. The interest that you pay on a loan taken against FD doesn't get any tax benefits, but the interest that you get on a new FD is taxable a...