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Earn interest up to 7.95% p.a. by investing in a Bajaj Finance Fixed Deposit | Rated CRISIL AAA/ STABLE and [ICRA]AAA(stable)

Fixed deposits add a healthy mix of risk-free investment options to your portfolio. Apart from diversifying your portfolio and accruing guaranteed returns, fixed deposits also come with a good liquidity balance. Thus, if you find yourself in need of emergency cash flow, you can easily fall back up on your FD investments.

 

Both partial and complete premature withdrawals of fixed deposits are permitted by most banks and NBFCs against certain penalty charges. This penalty charge usually varies from 0.5%-1% and can be revised from time to time as per the policies of the bank/NBFC. However, there are certain non-callable plans that don’t permit such premature withdrawals of fixed deposits. Additionally, while most institutions don’t pay any interest on FDs withdrawn in less than seven days, different banks/NBFCs may have different minimum lock-in periods. 

Premature Withdrawal Penalty Among Top Banks

Most banks have an incremental penalty policy for the premature withdrawal of fixed deposits. In other words, the penalty charge levied on the amount depends on the value of the sum and the overall deposit tenure. Let’s look at the withdrawal penalty policy of top banks: 

Bank 

Withdrawal Penalty

Premature Withdrawal of Fixed Deposit in Yes Bank

  • 3% penalty is charged on FDs withdrawn within 7 to 90 days.

  • 2.25% penalty is charged on FDs withdrawn within 91 to 181 days.

  • 2% penalty is charged on FDs withdrawn within 182 days to 2 years. 

  • 1% penalty charged on FDs withdrawn within 12 to 36 months.

  • No penalty for senior citizens.  

Premature Withdrawal of Fixed Deposit in SBI Bank

  • 0.50% penalty on deposits up to ₹5 Lakh.

  • 1% penalty on deposits above ₹5 Lakhs.

  • No interest is paid on deposits withdrawn in less than seven days.

  • Interest for the deposit tenor will be 0.5%-1% lower than the agreed-upon rates when the FD was opened. 

Premature Withdrawal of Fixed Deposit in ICICI Bank

  • Interest is calculated as the lowest rate applicable for the tenor the FD stayed in the bank. 

  • 0.5% penalty levied on deposits above ₹5 Crores and above that are withdrawn in less than a year. 

  • 1% penalty is charged on deposits above ₹5 Crore and above that are withdrawn after a year but before five years.

  • 1% penalty charged on deposits of less than ₹5 Crore that are withdrawn after five years.

  • 1.5% penalty charged on deposits of more than ₹5 Crore that are withdrawn after five years.

Premature Withdrawal of Fixed Deposit in HDFC Bank

  • Interest rates are calculated as the base interest rate for the original tenor or the base rate applicable for the tenor the deposit has remained in the bank. 

  • 1% penalty is charged on all complete and partial premature withdrawals.

  • No interest for FD deposits withdrawn in less than seven days of account opening. 

Premature Withdrawal Penalty Among NBFCs

You should know about the penalties applicable on premature withdrawals of fixed deposits before you decide to open an FD account with an NBFC. Let’s have a look at the different premature withdrawal of fixed deposit penalties levied by leading NBFCs: 

NBFC

Withdrawal Penalty

Bajaj Finance Ltd. 

  • No withdrawals are allowed in the first three months.

  • No interest is paid for withdrawals after three months but before six months. 

  • 2% interest penalty is levied on the applicable interest rate for withdrawals made after the first six months but before the maturity date.

PNB Housing Finance Ltd.

  • No withdrawals are allowed in the first three months. 

  • 4% p.a. interest rate is applicable for withdrawals made in the first six months.

  • 1% interest penalty levied on the applicable interest rate for withdrawals made after the first six months but before the maturity date.

Mahindra Finance Ltd.

  • No withdrawals are allowed in the first three months. 

  • No interest is paid on FDs withdrawn between 3-6 months.

  • For withdrawals made after the first six months but before maturity, interest is calculated at a rate that’s 2% lower than the rate applicable for the FD’s completed tenure.

  • If no rates are mentioned for this tenure, interest will be calculated at a rate that’s 3% lower than the minimum prevailing FD rate the company offers.

What are the Penalty Charges for Premature Withdrawal of a Fixed Deposit?  

If you decide to withdraw your FD investment before the end of the predetermined tenor, you will have to pay certain penalty charges. Most banks and NBFCs cap these penalty charges at around 0.5%-1%. Additionally, when you decide to opt for the premature withdrawal of fixed deposits, you also stand to lose out on potential compounded interest earnings.

How is a Penalty Levied  

While it is important to know the premature withdrawal penalty rates for your banks/NBFC, you should also know how these penalties are calculated. Most banks/NBFCs will likely use one of the following two ways to calculate interest on premature withdrawals of fixed deposits:  

 

  • Case 1

Let’s say you have invested in a ₹1 Lakh FD for a period of 3 years at a rate of 5.80% p.a. Suppose the interest rate for the first FD 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 bank’s 1% penalty rate. Let’s assume the bank levies a penalty of 1% on the premature withdrawal of fixed deposits; your new interest rate then becomes 5.50%-1%= 4.50%. The revised FD rates are lower than the original 5.80% rate. 

Parameter

Details

Principal Sum Invested

₹1,00,000

Maturity Amount After 1 Year

₹1,05,927

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 

₹1,04,593

  • Case 2

Suppose you’ve booked a 1-year FD at 7% p.a. interest. However, due to some financial emergency, you had 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 6-month FD because the interest rates for this tenure were lower than a 1-year FD. Let’s also assume that the bank levies a 1% penalty charge on the effective interest rate for the premature withdrawals of the fixed deposit amount. Thus, the interest payable to you will be calculated as 6.50%-1% = 5.50%.

Parameter

Details

Principal Sum Invested

₹1,00,000

Maturity Amount After 1 Year

₹1,07,229

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 

₹1,05,640

How to Withdraw FD Prematurely

Unforeseen emergencies can take you by surprise. Most people invest in FDs to prepare for such rainy days well in advance. While such financial foresight is prudent, it is equally important to know how to register a request for the premature withdrawal of your fixed deposit amount. 

 

While earlier, FDs could only be withdrawn offline, digitisation has also made online FD withdrawal possible. Let’s have a look at how you can register a request for the premature withdrawal of FDs online and offline. 

 

1. Online Method

By initiating an online request for the premature withdrawal of fixed deposits, you can avoid the hassle of visiting a physical branch office. Here are the steps you need to follow to register such requests online:

 

  • Step 1: Visit your bank or NBFC’s website.

  • Step 2: Log in to the Net Banking portal using your ID and password.

  • Step 3: Go to the ‘Service’ tab and select the ‘Premature Withdrawal of Fixed Deposit’ option.

  • Step 4: Enter all the relevant information, like your name, FD number, etc.

  • Step 5: Submit the request and wait for it to be processed.

  • Step 6: After your request is processed, the money will be automatically transferred to your account. 

 

2. Offline Method

You can follow the below-mentioned steps to apply for the premature withdrawal of fixed deposits offline:

 

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

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

  • Step 3: Submit the form with all the required supporting documents, including your FD certificate.

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

FDs Without Premature Withdrawal Facility

While most fixed deposits can be withdrawn before they reach maturity, there are some that don’t permit such premature withdrawals. For instance, non-callable deposits and tax-saving 5-year deposits don’t offer premature withdrawal benefits. Usually, this restriction also extends to the premature withdrawal of fixed deposit amounts above ₹2 Crores. Some instances of such FDs are listed below:

 

  • ICICI Bank: Deposits of ₹2 Crores and above

  • HDFC Bank: Deposits of ₹2 Crores and above

  • SBI Bank: Non-callable deposits of ₹1 Crore and above

  • PNB: Non-callable deposits of ₹15 Lakhs and above

 

It is important to note that every bank has a certain lock-in period - ranging from one week to three months- during which no premature withdrawals are permitted. In other words, you cannot register a request for the premature withdrawal of your fixed deposit before the lapse of this minimum lock-in period. Additionally, for the FD accounts mentioned above, banks make special withdrawal concessions in the event of your untimely demise. 

How to Avoid Premature FD Withdrawal Penalties

Investing in an FD is a clever way to park your savings in a low-risk plan. With a little foresight, you can optimise such simple investment avenues to contribute to your wealth creation journey, as well as come in handy on rainy days. If you’re thinking about ways to bypass the fixed deposit early withdrawal penalty levied by lenders, here’s a list of strategies you can adopt: 

 

  • Fixed Deposit Laddering - While FD laddering may seem like a complicated concept, it really just translates to diversifying your investment portfolio. Instead of putting all your eggs in one basket, with a laddering approach, you divide your corpus among various FD avenues with different maturity tenures. If you can pick a healthy mix of long and short-term FDs, you can reduce the risk of penalties associated with the premature withdrawal of fixed deposits. With FDs maturing at different times, you can enjoy windows of liquidity and help meet any immediate needs without breaking your long-term FDs. 

 

  • Loan Against Your FD - You can secure short-term liquidity by taking a loan against your FD. Most banks and NBFCs offer this facility, allowing you to withdraw up to 90% of your principal as a loan. Usually, the interest charged is 1%-2% higher than the FD interest rate, but at the same time, it's lower than regular personal loan interest figures. Additionally, since this is a secured loan, your credit score will not have a bearing on the interest rates or loan amount. Thus, such loans help avoid premature withdrawals on your fixed deposit while also guaranteeing that the deposited amount continues to grow at the fixed rate. 

 

  • Invest in a Sweep-In FD - Sweep-in FDs combine the liquidity benefits of a saving account with the high interest rates of a regular FD to bring you the best of both worlds. To avail of such benefits, you simply need to link your sweep-in FD to a current or savings account. You need to set a minimum balance mandate for your savings account. After that’s done, any excess sum in this account will be redirected to the sweep-in FD. The best part about a sweep-in account is that you can withdraw money without attracting penalties on your withdrawals. 

Disadvantages of Premature Withdrawal of Fixed Deposits

  • Loss of Interest - If you opt for the premature withdrawal of fixed deposits, you lose out on reaping the benefits of compounding interest on the sum. FD maturity amounts are calculated on the basis of a set tenure and the prevailing interest rate on the day the account is opened. However, withdrawing the sum before the end of this tenure will result in lower returns as you will not receive this set interest rate. 

 

  • Penalty Payments - As already mentioned, every bank and NBFC levies certain penalty charges on the premature withdrawal of fixed deposits. While generally, this penalty charge can range from 0.5% to 1% of your interest rate, the rate might be revised by the institution from time to time.

 

  • Tiring Procedure - From handling a mountain of paperwork to meeting designated personnel and submitting relevant documents, the process of closing an FD is a long and tiring one. 

 

  • Loss to Your Financial Journey - Earning guaranteed returns from the invested lump-sum amount is the primary goal behind an FD. However, when you opt for the premature withdrawal of fixed deposits, you lose out on such benefits. For instance, if you’ve opted for a monthly interest payout option, you will lose out on your source of monthly earnings by liquidating your FD.

Credit Card Against FD - An Alternative to Premature Withdrawal of Fixed Deposit

While cash is needed to tackle financial emergencies, you don’t necessarily need to prematurely withdraw an FD account to get this required cash flow. Instead of losing out on potential returns from this investment plan, you can opt for 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. Moreover, while such secured credit cards help you manage your expenses without prematurely withdrawing your fixed deposit amount, they also help you build your credit score. 

FAQs

  • ✔️What is premature withdrawal of a fixed deposit?

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

  • ✔️Can I prematurely break my FD online?

    You can register a request for the premature withdrawal of your fixed deposit online. Simply visit your bank or NBFC’s website, go to the Service tab and click on the ‘Premature FD Withdrawal’ option. Once you’ve filled in the application form and submitted all the necessary documents, your FD closure request will be processed and approved. 

  • ✔️What are the regulations for premature withdrawal of fixed deposits?

    Regulations on premature withdrawals depend on the specific terms and policies of each financial institution. However, generally, every bank/NBFC has certain minimum lock-in periods for FD plans during which no withdrawals are allowed. They also have a set premature withdrawal penalty rate, usually ranging from 0.5%-1%.

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

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

  • ✔️How to withdraw an FD prematurely offline?

    To withdraw your FD offline, simply visit the physical bank branch or NBFC office and fill out the fixed deposit premature withdrawal 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 bank/NBFC has processed the request, the lump-sum amount will soon be reflected in your 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.