Post Office FD Premature Withdrawal Penalty

Post Office Fixed Deposits (FDs) allow investors to prematurely withdraw funds in case of emergencies. However, withdrawing early typically incurs a penalty, which is a reduced interest rate on the FD. The penalties and reduced rates vary depending on how long it has been since the deposit was made. 

The interest rate applied to premature withdrawals is generally lower than the rate agreed upon during the deposit, which impacts the total interest earned. It is crucial to assess the financial need before opting for premature withdrawal.

Post Office Fixed Deposit Premature Withdrawal Penalty

Here are the rules for closing the account or making Post Office Fixed Deposit premature withdrawal:

• You are not allowed to withdraw any deposit before 6 months from the deposit date

• If you close your account after 6 months but before 1 year, the interest rate of the post office savings account will apply

• If you close a 2, 3, or 5-year account after 1 year but before the maturity, the interest will be calculated at 2% less than the TD rate

• The savings account interest rate will apply if you close the account for a part of the period less than a year

An Example to Understand the Premature Withdrawal Process

You can close your account prematurely at the designated post office. Before you opt for the premature closure of the account, it is crucial to understand the interest implications and penalties involved. For better clarity, consider an example.

Say you invest ₹1 Lakh for a tenure of 5 years. If you close the account after 6 months but before 1 year, the rate of the savings account will apply, which is 4% p.a as of August 2024.

If you close an account with a 2, 3 or 5-year tenure, the interest will be calculated at 2% less than the TD rate. In these cases, the applicable interest rate will vary between 5% p.a. and 5.5% p.a. 

Impact on Interest Earned

Prematurely closing your post office TD account significantly reduces the interest earned as compared to the expected returns at maturity. Here are the interest rates that will apply when you withdraw the funds at various time durations:

• 6 Months to 1 Year: 4% p.a.

• 2 Years: 5% p.a.

• 3 Years: 5.1% p.a.

• 5 Years: 5.5% p.a.

Process for Premature Withdrawal of Post Office FD

You can close your National Savings Time Deposit Account (TD) by visiting the post office. Submit the application form and the passbook at the concerned post office.