Fixed deposits offer secure returns, but early withdrawals can reduce your earnings. While they provide quick access to funds in emergencies, premature withdrawals often lead to lower interest and penalties. This article explores how early FD withdrawals impact returns and what investors should consider before taking this step.
What is premature withdrawal
Premature withdrawal means taking money out of a fixed deposit before it reaches its maturity date. You might do this in case of an emergency or urgent financial need. However, most banks and financial institutions charge a penalty for early withdrawal, which can lower the interest you earn on your deposit.
The penalty charges for premature withdrawal of fixed deposits can be levied in different ways. For instance, some banks may charge a percentage of the interest earned as a penalty, while others may charge a fixed amount.
It is important to read the terms and conditions of the fixed deposit scheme carefully before investing.
How to break a fixed deposit account before maturity
You can break a fixed deposit before maturity either online or by visiting your bank branch. For offline withdrawal, visit the nearest branch, submit your FD receipt, and fill out a withdrawal form along with the required documents.
Note: Some banks allow online FD withdrawals only if the deposit was originally booked through their website. Also, ensure that your internet banking is activated to initiate an online withdrawal.
How premature withdrawal of FD affects interest rate
Let’s say you invested Rs. 10 lakhs in a fixed deposit for 48 months at an interest rate of 8.05% (fixed for the full tenure). Suppose you decide to withdraw the amount after 12 months. In that case, the bank will calculate interest based on the rate applicable to a 1-year FD at the time you originally opened the deposit—not the 8.05% you were initially offered.
Penalty Charges for Premature Withdrawal of FD
Here’s the updated section based on the official Bajaj Finance premature withdrawal policy:
Lock-in period: FDs cannot be withdrawn within the first 3 months, except in the unfortunate event of a depositor’s death, a verified medical emergency, or for "tiny deposits" under Rs. 10,000
Withdrawal between 3–6 months: No interest is paid during this period
Withdrawal after 6 months but before maturity: Interest is paid at a rate that is 2% lower than the applicable rate for the actual tenure. If that applicable rate isn’t defined, a minimum rate is 3% lower
Other situations: In case of medical emergencies or for tiny deposits below Rs. 10,000, 100% of the principal is returned, typically without interest
Alternative to withdrawal: Instead of breaking your FD, you can opt for a loan against FD—up to 75% of the deposit—offered at rates 2% above the FD interest
So, before you choose premature withdrawal, do the calculation and be prepared to receive lower returns. If not, try to fund emergencies using other modes of finance like personal loans, cash reserves, or the sale of an asset. This way, you can keep your FD intact until the lapse of the tenor.
How to calculate penalty on premature withdrawal of fixed deposit?
Depending on the lender you have chosen, you may have to pay a significant sum of money as a penalty. This could range from 0.50% to even up to 2% of the FD amount. So, before you prematurely close your FD, ensure that you are prepared to pay this penalty.
Choose a lender that makes premature withdrawal easy and has flexible terms. Consider opening a Fixed Deposit with Bajaj Finance, which charges a low premature withdrawal fee while offering an attractive FD interest rate.
