Premature withdrawal refers to the early withdrawal of funds from an investment or savings scheme before its intended maturity or completion period. This may result in certain penalties, fees, or adjustments to the interest rates earned, depending on the terms and conditions of the financial product.
Bajaj Finance launches a new variant, "FD Max", for investments upto Rs. 25,000 . Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a.for senior citizens and 8.60% p.a. for non-senior citizens , in this variant.
You may find yourself wanting to prematurely withdraw from your fixed deposit account due to an unforeseen expense or emergency. In such cases, it is essential to know the financial consequences of breaking your FD.
The rate of interest offered on fixed deposits tends to be higher for longer tenures. An FD with a longer tenure is set to fetch you better returns than a shorter-term FD this is because of the power of compounding. As you can see, a 4-year FD can yield returns up to 8.05% p.a., whereas a 1-year FD would offer 7.40% p.a. which is lower than the former. Also, if you wish to prematurely withdraw your FD, you will be charged interest as per the rate on the day of opening your account for the actual period your account was open.
In certain economic climates, interest rates on FDs may drop, and there is no guarantee that they will be as high as they were on the date you opened your account. Therefore, you are making yourself susceptible to lower interest rates by prematurely withdrawing your FD, should you wish to reopen an FD again shortly. What’s more, many financial institutions such as Bajaj Finance offer you assured returns that are immune to market fluctuations, so it is in your best interest to think deeply before withdrawing prematurely.
If you plan on closing your FD to reinvest the money with another issuer offering you a higher rate of interest, it will benefit you to first calculate the amount of money you would lose in premature withdrawal fees and lower interest. In most cases, once you have taken these fees into account, you may find that the new FD will offer you the same or sometimes lower returns on investment.
If you need immediate financial assistance, it may be better for you to avail of a loan against your FD rather than break the FD. Loans against FDs offer you far better interest rates than personal loans. Most issuers will set the interest rate at one or two percent higher than the FD interest rate. What is more, with your FD still intact, you can continue to earn interest.
With Bajaj Finserv, your loan amounts, card limits and insurance is already approved. All you must do is simply share a few details and get money in bank with 1-step verification. You can check your pre-approved offer here.
A fixed deposit that offers you assured returns at competitive interest rates is a long-term investment that should not be broken lightly. If you require immediate funds, a loan taken against the FD is a far more financially prudent solution. If this does not work for you, you can easily withdraw your FD before maturity by making an easy online application. Choose an issuer who has a simple process of premature withdrawal to ensure that you have the liquidity you desire during your time of need.
When investors opt for premature withdrawal of fixed deposits (FDs) to invest in new deposits offering higher interest rates, they may face a dip in their overall earnings. This is because premature withdrawals are subject to penalties and other charges, which can offset the potential increase in earnings from the new deposit. As such, it’s important to weigh the costs and benefits before making any investment decisions.
Avoiding penalties on premature FD withdrawal is essential for maximising returns. Here are to avoid the penalty on premature withdrawal:
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Premature withdrawal of a fixed deposit refers to the act of withdrawing your FD amount before it reaches its predetermined maturity date. This is done by breaking the contract with the bank or financial institution where you initially invested your money.
The penalty for breaking an FD before maturity varies depending on the bank or financial institution and the terms of your FD. Typically, it involves a reduction in the interest rate, usually 0.5% to 2%. The penalty amount may vary from one bank or financial institution to another.
No, breaking an FD does not directly impact your credit score because it's not a credit-based activity. Credit scores are influenced by credit-related activities such as loans, credit card payments, and defaults. However, if you break an FD to meet a financial emergency, it may indirectly help maintain your credit score by preventing you from defaulting on other obligations.
Breaking or withdrawing an FD can be profitable if you have a better investment opportunity elsewhere that offers higher returns, and the gains from the new investment outweigh the penalties and reduced interest from the FD.
Premature withdrawal of FD is subject to taxation. The interest earned on the withdrawn amount is added to your income and taxed according to your tax slab. This tax is deducted at source by the bank.
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