fd overdraft for paying education

[Chirayu Juneja]

Hi everyone, I wanted to know if I can create multiple FDs in different banks and take an overdraft to pay my college fees. As it has less interest and more flexibility, will it be beneficial or rather I should opt for an education loan?

 

[ShavirB]

Let's break this down. I would like to make few assumptions here

1) Interest Rate for Education Loan - 9%
2) Tax Deduction for Interest Paid under Section 80E - 20%
3) Effective Education Loan Interest - 7.2% (accounting for 20% tax deductions under section 80E)

Option 1: Create multiple FDs in different banks and take an overdraft to pay my college fees

-Net Interest Paid in Option 1: 1% (Interest Charged for OD - Interest Offered by FD)
-Interest Paid after tax rebate : 0.80%

Option 2: Take Education Loan. Invest that money in Small Finance Bank FDs

-Interest Earned on FDs in Small Finance Bank: 9.00% (Unity Small Finance Bank)
-Post Tax Returns (assuming 20% tax bracket): 7.20%
-Effective Education Loan Interest - 7.20% (Assumption 3)
-Net Interest Paid = 0% (Interest Earned from FD - Education Loan Interest).

Conclusion: Option 2 seems to be a better option

P.S - Please note that these numbers will change if any of the assumptions change