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OVERDRAFT
Get over with Breaking Deposits
The Unfixed deposits and 2in1 schemes come to a customer's rescue in times of an emergency. Some banks like Citibank, Standard Chartered, HSBC and Times Bank give their client the option of either breaking their deposits or going in for an overdraft facility.
While availing of an overdraft facility, the deposit remains intact and earns the designated rate of interest. Only on the amount lend by the bank will a certain rate of interest will be charged. This will be generally 2% or so more than the earning rate. This would not amount to be much if the customer takes it for a short duration. So a cardinal rule of thumb while taking an overdraft is  take it when money is needed for a short while only.
If one goes for breaking a deposit, one has to suffer a penal rate of interest which is generally 12% less than the designated rate for the period for which the deposit was left intact. This would mean that if I had deposited a sum of Rs.50,000 at 10.5% per annum for a period of 3 years and withdrew Rs.25,000 after 2 years, I would receive interest at 8.5% (9.5%  1%) per annum for the sum withdrawn and 10.5% for the rest of the money.
We have attempted to compare the two options available for a sum of Rs.100,000 deposited for a 3 year period. We have assumed an interest rate of 9.5% for a 1 year period, 10% for 2 years and 10.5% for 3 years.
Overdraft: Rs. 20,000 after 2 years for 1 month 
Interest rate: (2% + 0.25% interest tax above interest earned of 10.5%) 
Interest paid: Rs. 212.5 
Interest earned: Rs. 31,500  Rs. 212.5 = Rs. 31,287.5 
Overdraft: Rs. 20,000 after 2 years for 6 months 
Interest rate: (2% + 0.25% interest tax above interest earned of 10.5%) 
Interest paid: Rs. 1275 
Interest earned: Rs. 31,500  Rs. 1275 = Rs. 30,225 
Overdraft: Rs. 20,000 after 2 years for 1 year 
Interest rate: (2% + 0.25% interest tax above interest earned of 10.5%) 
Interest paid: Rs. 2550 
Interest earned: Rs. 31,500  Rs. 2550 = Rs. 28,950 
Breaking the deposit: Rs. 20,000 after 2 years 
Interest rate for amount broken: 10%  1% = 9% 
Interest earned: (9% on 20,000) + (10.5% on 80,000) = Rs. 3,600 + Rs. 25,200 = Rs. 28,800 
