Premature withdrawal of a fixed deposit 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 providers specify the penalty for early withdrawal, which varies among 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.

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:

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, and in return, it gives you an estimate of your loss. 

 

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

To steer clear of early withdrawal penalties imposed by issuers, consider these practical strategies:

• 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 liquidating your long-term FDs.

• Loan Against FD

Secure short-term liquidity by leveraging loans against FD. Many banks and NBFCs offer this option, allowing you to borrow up to 90% of your principal. Although the interest is slightly higher (usually 1%-2% more than the FD rate), it's lower than regular personal loan rates. 

 

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 the fixed rate.

• 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.

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 of your fixed deposit but also contribute to building your credit score.