Premature Withdrawal of FD

Premature withdrawal of FDs occurs when you withdraw an FD, either partially or fully, before its maturity date. Most banks and Non-banking Financial Companies (NBFCs) permit both partial and complete premature withdrawals of fixed deposits. 

 

However, some FD issuers specify the penalty for early withdrawal. This penalty varies across issuers and should be considered before investing. It's important to note that there are non-callable plans that do not allow premature withdrawals of FDs.

Here are the details of the penalty for breaking a fixed deposit early that some issuers charge:

Note: These penalty terms are subject to change at the issuer’s discretion.

Here are the FD premature withdrawal penalty charges if you break the deposits before the end of the tenor:

Note: These penalty terms are subject to change at the issuer’s discretion.

Most banks/NBFCs may use one of the following two ways to calculate interest on premature withdrawals of fixed deposits: 

• Case 1

Let’s say you have invested ₹1,00,000 in an FD for a period of 3 years at a rate of 5.80% p.a. Suppose the interest rate for the first year is 5.50% p.a. Now if you decide to withdraw the amount after one year, your interest will be calculated after factoring in the issuer’s penalty rate. 

 

Assuming the bank levies a 1% penalty on the premature withdrawal of fixed deposits, your new interest rate is 5.50%-1% = 4.50%. The revised FD rates are lower than the original 5.80% rate. Here’s an overview of how this affects your returns:

Parameter	Details
Principal Sum Invested	₹1,00,000
Maturity Amount After 1 Year	₹1,05,000
Rate of Interest at the Time of Booking	5.80% p.a.
Effective Interest Rate	5.50% p.a.
FD Premature Withdrawal Penalty Rate	1%
Final Interest Rate	4.50% p.a.
Final Amount Payable	₹1,04,500

Note: The FD rates, penalties, and returns mentioned are for calculation purposes only. Contact your issuer to better understand the penalty on your fixed deposit.

• Case 2

Suppose you have booked a 1-year FD at 7% p.a. interest. However, due to some financial emergency, you decide to withdraw the amount after six months. The prevailing interest rate for a six-month FD at the time was 6.50%. 

 

This means that the interest payable to you will be that of a six-month FD because the interest rate for this tenor is lower than a 1-year FD. Assume that the issuer levies a 1% penalty charge on the effective interest rate for the premature withdrawal. 

 

The interest payable to you will be calculated as 6.50%-1% = 5.50%. The table below shows how this affects your returns.

The FD premature withdrawal penalty calculator offers the same benefit as that of an FD calculator – enabling informed decisions. Here, you enter the FD investment amount, tenor, interest rates, and effective interest rates. Once entered, it gives you an estimate of your loss. 

 

With this estimate, you can determine whether opting for premature closure of FD is a good idea for your current and future finances. Additionally, a majority of issuers offer FD with a premature withdrawal facility as well as a loan against FD facility.

You can prematurely withdraw money from your fixed deposit account either online or offline. For the online method, visit the issuer’s official website and log into your account to complete the process. For the offline method, you’re generally required to follow the below steps: 

1. Visit your bank or NBFC branch and get an application form for the premature withdrawal of your fixed deposit

2. Carefully fill out the application form with details like name, FD number, etc

3. Submit the form with all the supporting documents, including your FD certificate

4. Once processed, the FD amount will be credited to your savings bank account

Here are some of the disadvantages you will have to face if you withdraw your FD earlier than the predetermined tenor:

• Loss of Interest: As FDs tend to provide higher returns in the long term, the interest earned tends to reduce if you withdraw before maturity

• Penalties and Charges: Premature withdrawal of FDs attracts certain penalty charges, which may further affect the returns you earn  

• Impact on Financial Goals: Since you may have started an FD with a financial objective in mind, liquidating it early will hinder your progress 

In case of a financial emergency, instead of resorting to premature FD withdrawal, consider availing a credit card against your FD. Such credit cards allow you to withdraw 75%-80% of your principal deposit while still earning interest. 

 

Most banks and NBFCs offer this facility to their customers. Additionally, secured credit cards not only assist in managing expenses without early withdrawal, but also contribute to building your credit score.

The information provided by BFDL is related to the rates provided by Banks and Deposit taking NBFCs as available from public domain and under no circumstances is intended to be source of advice or recommendation of any financial investment advice or endorsement of any sort. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers and use of such information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. Display of any intellectual property along with the related product information does not imply BFDL’s partnership with the owner of the intellectual property of such products and is solely for the purpose of information, unless otherwise provided by BFDL.