Premature Withdrawal of FD: How interest is calculated and how you will be charged

By: |
November 23, 2021 4:45 PM

Bank FDs are widely accepted due to their safe and secure nature. They also offer a cumulative option, instead of the regular or interest payment options, along with relatively low risk and fixed returns.

Fixed deposit, fixed deposit interest rates, FD rates, highest FD returns, tenures up to 5 years, FD, fixed deposit, bank deposit, Corporate FDs, good option, build your corpus, Debt instruments, interest rate, ICRA, CARE, CRISIL, key risks, RBI, repo rate, DCB Bank, Axis Bank, Yes Bank, RBL BankOn either closing or prematurely withdrawing from a fixed deposit account before completion of the tenure, that's when banks charge a penalty.

Fixed deposits are not only limited to risk-averse and conservative investors but are also one of the most preferred investments and saving tools preferred by all in India. Bank FDs are widely accepted due to their safe and secure nature. They also offer a cumulative option, instead of the regular or interest payment options, along with relatively low risk and fixed returns.

Industry experts say FDs could be used by an investor when in need of emergency funds, as Bank FDs offer a wide range of tenures to choose from, ranging from 7 days to up to 10 years, and the main advantage is liquidity. One can opt for easy premature withdrawal from one’s FDs, however, often this comes with a penalty.

There are 2 types of accounts that you can choose while opening a bank fixed deposit – 1) with a premature withdrawal facility; 2) without the premature withdrawal facility. If you choose without the premature withdrawal facility, it comes with a compulsory lock-in period.

On the other hand, even though one can withdraw the amount with a premature withdrawal bank FD, it usually comes with an added penalty. However, most banks have their own set of terms and conditions. For instance, big banks like SBI, ICICI Bank and HDFC Bank have their own rules and regulations when it comes to withdrawing money from one’s FD account before maturity.

Penalty for Premature Withdrawal

On either closing or prematurely withdrawing from a fixed deposit account before completion of the tenure, that’s when banks charge a penalty. The penalty ranges between 0.55 per cent to up to 1 per cent of the FD amount. For instance, In case of premature withdrawal from ICICI bank FD, for deposit less than Rs 5 crore and tenure less than 1 year, one is charged a penalty of Rs 0.50 per cent, whereas, for tenure between 1 year and above, a penalty of 1 per cent is charged.

With SBI bank to make a premature withdrawal from an FD, one is usually charged a penalty of 0.05 per cent across all tenures, for any amount below 5 lakh, and deposits above Rs 5 lakh up to Rs 1 crore, a penalty of 1 per cent. Hence, if you have an FD for Rs 3 lakh with the bank, you will have to pay around Rs 1,500 as a penalty from your deposit, whereas, if you have an FD of Rs 18 lakhs with the bank, around Rs 18000, you will be charged as penalty. HDFC bank on the other hand charges a penalty of 1 per cent, for premature withdrawals from FDs, including sweep-ins and partial withdrawals.

Banks usually pay interest for the whole period the deposit has remained with the bank but is 0.50 per cent or 1 per cent lower than that of the rate applicable at the time of opening the account or lower than the contracted rate, whichever is lower. For instance, in case of premature closure of the FD account with HDFC bank, the interest rate applicable will be either the base rate for the tenure for which the FD was initially opened or the base rate applicable for the tenure for which the deposit has been with the bank, whichever is lower.

Keep in mind that certain banks waive off the penalty on fixed deposits of certain categories of customers, for a specific tenure and do not penalize for premature FD withdrawals. Hence, check with the bank about the rules before making a premature withdrawal. Additionally, with most banks, no penalty is charged for withdrawals that are made within 7 or 14 days of opening the account.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1How to protect your banking transactions from cyber frauds
2Looking for large and mid-cap equity exposure? Consider an index fund
3SGB 2021-22: Gold Bond issue price fixed at Rs 4,791/gm; subscription opens Monday