Fixed Deposit is the most popular type of investment in the country. This is because the FD interest rates are fixed and the returns are guaranteed. Generally, fixed deposits generate returns at maturity. However, there are times when you might need to withdraw the amount prior to the term of maturity. This is known as premature FD withdrawal. While this high liquidity of capital comes in handy during a financial crisis, there are few things that you must know before you break your FD prior to maturity.
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You can opt for premature withdrawal from FD in the following two methods.
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Offline procedure
- Visit the office of the respective bank.
- Submit the fixed deposit advice or receipt at the bank. Make sure the receipt has the signatures of all FD account holders.
- If fixed deposit advice is not available, submit the FD liquidation form.
Online procedure
You can also withdraw your FD online. If you have booked your FD through net banking, the bank will allow you to withdraw the amount using net banking. Here are the steps you can follow.
- Visit the website of your FD provider.
- Select the respective option for premature withdrawal.
- Enter the required details.
Things to keep in mind
- Always remember that some banks offer online withdrawal facilities only for those who booked fixed deposits schemes online. For example SBI e-TDR/e-STDR
- To use online features of FD withdrawal, an investor should have an active internet banking service on their device.
What happens when you opt for premature FD withdrawal?
Whatever the reason may be, it will lead to the following events when you opt for a premature FD withdrawal.
Rate of interests remain the same
When you break your FD before the maturity, the rate of interest stays the same. The bank will levy the same rate that was mentioned to you while opening the fixed deposit account. Even if the current interest rates are higher, you will not get the benefits. At times, you might not even receive any kind of interest for not completing the standard tenure as presented by the bank.
Suppose, at the time you created the FD account, the bank was offering you 6%. But now the rate has changed to 8%. This does not mean that if you withdraw your FD before maturity, the rate will be increased to 8%; rather, it will stay the same, i.e., 6%.
You might have to pay a closure penalty
Banks might charge penalties for premature withdrawal. They may also reduce the FD interest rate by 0.5-1% as retribution. Banks might consider relinquishing this penalty if you have an emergency. This too, may vary from bank to bank and the reason for the emergency. However, certain banks may cease the forfeit if you are willing to reinvest the amount extracted. This means premature closure can be a loss, as you get a lower interest, along with paying a penalty sum.
The Reserve Bank of India gives banks the liberty to set their respective penalty rates in case of premature withdrawal of FDs. The only prerequisite is that the banks should inform their customers about the penalty charges and the deposit rate beforehand.
Some banks offer a facility of premature FD only on the higher amount of fixed deposits.
| Bank Name | Amount |
| ICICI Bank | Rs 2 crores and above |
| HDFC Bank | Rs 5 crores and above |
| Punjab National Bank | Rs 15 lakh and above |
| Standard Chartered | Rs 2 Crores and above |
Premature withdrawal with SBI
- The rate of interest will get lower by 0.50%-1.00% from the interest rate you were getting at the time of blocking the fixed deposits. For example: If your interest rate at the time of blocking was 7.50%, in case you withdraw the FD before the date your interest rate will become 7.00% in that case.
- For an amount upto Rs 5 lakh the bank will charge a penalty of 0.50% for all the tenure of premature withdrawal.
- FOr fixed deposits which ranges above Rs 5 lakh and below Rs 1 crore the penalty will be 1% for all tenures For example: If you have invested Rs 3 lakh in a FD and withdraw it before time then you will have to pay a penalty of Rs 1500 and if you have invested Rs 18 lakh then you will have to pay Rs 18,000 as a penalty.
- If fixed deposits are withdrawn in less than 7 days of blocking then investors will not get any interest.
Premature withdrawal with HDFC
- Incase of premature withdrawal the rate of interest will be lesser from the base rate. The base rate is a rate which is effective from the time when fixed deposits were booked.
- Penalty of 1% will be charged by the HDFC bank if fixed deposits are withdrawn prematurely, partially or sweep-ins.
- If fixed deposits are withdrawn in less than 7 days of blocking then investors will not get any interest.
Premature withdrawal with ICICI
- ICICI Bank charges 0.05% as penalty charge if a tenure of a depositor is less than a year.
- The bank charges 1% as a penalty if the depositor has opted for a tenure which ranges between 1 year and above.
Alternatives for premature withdrawal
Whether you have an emergency or want to invest elsewhere, there are certain helpful alternatives to breaking your FDs. Here is what you can do instead of breaking an FD.
Divide your investment
Instead of opting for a single FD, divide your investment in FDs with both short term and long term. In case of any financial crunch, you can break one FD and continue to earn interest from the other FD.
Opt for a loan against FD
Loan against FD can be a good alternative for premature FD withdrawal. The interest rates of loans against FDs are lower than personal loans. Generally, banks provide 70% to 90% of the FD value as a loan. But it can also provide you more than 90% depending on the FD amount and the bank where you have the account. Opting for an FD loan does not require your credit card score as your FD is used as the collateral against the loan amount.
Few banks may charge a negligible penalty amount against the loan. But, if you have a good liaison with the bank, they can waive this off. Few banks also provide the option of using other accounts for loan settlement in case of default payments. The loan procurement process is also very swift. It does not require any documentation. All you need to do is visit your bank and initiate a request.
Although you can liquidate your FD in case of emergency or to avail higher rates of interest by investing in another FD, it is always wise to abstain from doing so if the maturity period is near. This is because you will lose a considerable amount on the penalty.
Disadvantages of premature FD withdrawal
Premature FD withdrawal may be beneficial at times but it has its own set of disadvantages:-
- Penalties– When an investor withdraws the fixed deposits before time then penalty is levied by the bank. Generally, financial institutions charge 0.05% to 1.00% of the interest. Penalty charges are different with every lender and from time to time banks keep updating the penalty charges.
- Loss of Interest: You have to keep in mind that you will not receive the exact amount which was decided while sealing the deal. Premature withdrawal will lead to decrease in interest amount. When you calculate the amount which you will get after premature withdrawal you must calculate the penalty charges as well.
- Halt to the Financial Growth: Premature withdrawal may disturb your financial plans. As you must have planned your finances which are dependent on the interest of the fixed deposits. Premature withdrawal will disturb all the financial planning and also affect the cash flow.
- Premature Withdrawal is a Cumbersome Process: Withdrawing a fixed deposit before your tenure gets over is a cumbersome process, it is not as easy as you thought. There are multiple steps involved like filling forms, submitting documents, meeting the bank officials and many more, which may take a day or two. The procedure can be done in two ways either, online or offline.
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An investor should make sure that he/she does a thorough research about everything related to fixed deposits. Fixed deposits not only involve interest and tenure but also premature withdrawal facility available, if yes then what are the charges and penalty levied by various lenders. Always compare the penalty charges of premature withdrawal as well.
