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.

Premature Withdrawal Penalty Terms Among Banks

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

Issuer

Premature Withdrawal Penalty

YES Bank

0.75% if the tenor is less than 181 days; 1.00% if above 182 days (applicable to deposits of up to ₹5 Crores) 

SBI

0.50% for deposits up to ₹5 Lakhs; 1% for deposits above ₹5 Lakhs

ICICI Bank

0.50% for deposits of up to ₹5 Crores (less than 1 year); 1.00% for under 5 years; 1.50% for deposits over ₹5 Crores above 5 years

AU Small Finance Bank

1.00%

HDFC Bank

1%

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

Premature Withdrawal Penalty Terms Among NBFCs

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

Issuer 

Premature Withdrawal Penalty (Before Maturity)

Bajaj Finance

No interest earned if withdrawn before 6 months; 2% lower interest rate than applicable rate for remaining tenor if withdrawn after 6 months

PNB Housing Finance

1.00% penal interest

Mahindra Finance

No interest before 6 months; 2% lower interest rate after 6 months

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

How is Premature Withdrawal Penalty Levied?

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.

Parameter

Details

Principal Sum Invested

₹1,00,000

Maturity Amount After 1 Year

₹1,07,000

Rate of Interest at the Time of Booking

7% p.a.

Effective Interest Rate

6.50% p.a.

FD Premature Withdrawal Penalty Rate

1%

Final Interest Rate 

5.50% p.a.

Final Amount Payable 

₹1,05,500

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.

How Can an FD Premature Withdrawal Penalty Calculator Help

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.

How to Close an FD Prematurely

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

Tips to Avoid Premature FD Withdrawals

To steer clear of early withdrawal penalties levied by issuers, you could consider these tips:

1. Fixed Deposit Laddering

Embrace FD laddering as a simple way to diversify your investment portfolio. Instead of putting all your funds into one FD, spread your investment across various FDs with different maturity periods. 

 

A mix of long and short-term FDs reduces the risk of premature withdrawal penalties. With FDs maturing at different times, you gain liquidity windows to meet immediate needs without disrupting your long-term FDs.

2. Loan Against FD

You could also secure short-term liquidity by leveraging loans against FDs. Most banks and NBFCs offer this option, allowing you to borrow up to 90% of your principal. The interest charged on the loan may be 1%-2% higher than the FD interest rate. 

 

Since this is a secured loan, your credit score won't impact the interest rate or loan amount. This approach prevents premature FD withdrawals while ensuring your deposited amount continues to grow at a fixed rate.

3. Invest in a Sweep-in FD

Opt for sweep-in FDs, blending the liquidity of a savings account with the high-interest rates of a regular FD. Simply link your sweep-in FD to a current or savings account and set a minimum balance for your savings. 

 

Excess funds in the account automatically move to the sweep-in FD. Sweep-in accounts permit penalty-free withdrawals, allowing you to access your money when needed.

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Disadvantages of FD Premature Withdrawal

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 

Credit Card Against FD - An Alternative to Premature FD Withdrawal

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.

Disclaimer

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.

Frequently Asked Questions

What is the premature withdrawal of a fixed deposit?

Premature withdrawal of FD refers to the partial or full withdrawals made on an FD account before its maturity.

Can I prematurely withdraw my FD online?

Yes, you can register a request for the premature withdrawal of your fixed deposit online. Simply visit the issuer’s website and sign into your account to complete the premature withdrawal process.

How can I calculate the penalty for premature withdrawal of a fixed deposit?

Most banks and NFBCs offer an FD premature withdrawal penalty calculator. You can use this free online tool to determine the penalties levied on the premature withdrawal of your fixed deposit.

How can I withdraw an FD prematurely offline?

For an offline premature FD withdrawal, simply visit the issuer’s branch and fill out the required form. Once you’ve entered all the details of your FD, you can submit the form along with your FD certificate and other important documents. 

 

After the issuer has processed the request, the lump-sum amount will be transferred to your associated savings account.

Can I withdraw money from a fixed deposit before maturity?

Yes. However, premature withdrawals of fixed deposits attract certain penalty charges that vary from one financial institution to the next.

Do all banks charge the same penalty for premature withdrawal of an FD?

No, banks and NBFCs have different penalty policies and processes. You contact the issuer to know the applicable penalty rate. The same will be mentioned on the form you fill out at the time of investing.

Is a premature withdrawal facility applicable for a tax-saver fixed deposit?

No, tax-saver FDs do not allow premature closure or withdrawal.

Can I continue the FD account even after a premature withdrawal?

Yes, if you are making a partial withdrawal of FD before maturity you can continue to earn returns on the remaining investment amount. However, the interest rate may not be the same and the terms vary across issuers.

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