Fixed Deposit (FD) has long been considered one of the safest and most reliable investment options for Indian households. People have trusted it for decades as a guaranteed way to grow their money with almost zero risk. However, in recent times, a surprising trend has emerged – many investors are prematurely breaking their FDs.
- Rising Interest Rates
One of the primary reasons people are breaking their old FDs is the increase in FD interest rates.
Older deposits might have been locked at 5%–6% interest.
Today, many banks are offering 7%–8% or even higher.
👉 Naturally, investors prefer to break their low-interest FD and reinvest at higher rates to maximize returns.
- Urgent Financial Needs
With inflation and rising living costs, households are facing higher expenses than ever before.
Medical emergencies
Education fees
Home loan EMIs
FDs are often the easiest source of liquidity. Unlike other investments, they can be broken quickly to meet urgent cash requirements, even if it means paying a small penalty.
- Attraction Towards Stock Market & Mutual Funds
The Indian stock market has witnessed strong rallies in the past few years.
Nifty, Bank Nifty, and mid-cap stocks have delivered double-digit returns.
Many investors believe FD returns are too low compared to equities or mutual funds.
👉 This has led people to shift funds from FDs into stocks, mutual funds, or gold, seeking higher growth.
- Impact of Inflation
Inflation plays a silent but powerful role.
If inflation is at 6%, and your FD gives 6.5% interest, the real return is negligible.
In some cases, inflation even surpasses FD returns, meaning your money is losing value over time.
This realization has pushed many investors to explore alternatives that beat inflation.
- Tax Disadvantage
Another major drawback of FDs is taxation.
Interest earned from FDs is fully taxable under income tax laws.
Once tax is deducted, the effective return reduces further.
By comparison, instruments like PPF, ELSS, or NPS not only offer tax benefits but also better long-term returns.
Final Thoughts
Breaking an FD is no longer just about emergencies – it has become a financial strategy for many.
Some break FDs to earn higher interest rates.
Others do it to meet immediate cash needs.
And many shift funds to stock markets or mutual funds for better growth opportunities.
👉 However, before breaking an FD, investors must carefully consider:
Premature withdrawal penalty
Tax implications
Risk level of new investment options
FDs are still one of the safest choices, but in today’s dynamic financial world, people are increasingly looking for better returns and smarter investment avenues.
So, why is this happening? Let’s dive into the key reasons behind this shift.
