How to Initiate Premature Withdrawal of FD?

Fixed deposits are popular due to their guaranteed returns, safety and high liquidity. The liquidity benefit of a FD is related to the option of premature withdrawal of fixed deposits i.e. withdrawal of investment before end of the FD tenure. Find out how premature withdrawal of FD works and its role in making fixed deposit an ideal investment option in case you need to access funds in an emergency....Read More

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Applicable for Titanium variant of Max Life Smart Fixed-return Digital plan (Premium payment of 5 years and Policy term of 10 years) and a healthy male of 18 years paying Rs. 20,000 per month (exclusive of all applicable taxes) with 7.5% return. Life Insurance is available with this product

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What is A Fixed Deposit?

An FD (Fixed Deposit) account is one of India's most secure and safe investment options as it is relatively risk-free with guaranteed returns. It is an investment wherein the consumer deposits a specific sum of their money into an account for a certain tenure and earns interest on it.

Fixed Deposits come with a number of tenures to make a choice from.

These range from 7 days to a decade (10 years), apart from guaranteed returns, the key advantage of opening a FD. In an emergency, you can easily withdraw from an FD account either via the online route like Internet banking or via the offline route by visiting the bank branch.

Advantages of Fixed Deposits

Let’s look at some benefits you can get when you invest in fixed deposits:

• Assured return rate

The most significant reason why individuals prefer investing funds in fixed deposit is because of the well-assured rate of return. Once the funds are invested in a fixed deposit account, receiving stated rate of return is guaranteed.

• Flexible tenure

The tenure for a fixed deposit is highly flexible and depends on the holder of the deposit. However, these are generally long-term investment instruments.

• Easy liquidation

It is comparatively simpler to liquidate a fixed deposit. For the fixed deposits booked online, these can be liquidated online or via net banking as well.

• Loans against fixed deposit

It is extremely simple to get a loan against a fixed deposit. It is also a highly dependable instrument in case of any financial emergencies.

What is Premature Withdrawal of FD?

If you decide to close your FD account and withdraw the balance in your FD account prior to maturity of the account, it is termed as premature withdrawal of fixed deposit. This facility of premature FD withdrawal, which is offered by most banks and NBFCs in India, can come in handy when you are faced with a financial emergency.

For example, suppose you open an FD account for 3 years with an investment of Rs. 10,000. But due to a financial emergency you decide to close the FD account and withdraw the account balance after 1 year. This is an example of premature withdrawal of FD as you did not complete the planned 3 year FD tenure.

Penalty on Premature FD Withdrawal

When an investor chooses premature withdrawal of FD, the FD Interest rate provided is lower as compared to the interest rate guaranteed at the time of account opening. This is because, FD accounts with short tenure have a lower interest rate than a fixed deposit with a long tenure.

For example, suppose you open a Fixed Deposit account for 3 years which offers an interest of 6.75% p.a. But the same fixed deposit offers an interest rate of 5.25% when the FD tenure is 1 year. So if you decide to prematurely withdraw your FD account balance after 1 year, the interest paid to you will be 6% p.a. and not 8% p.a.

Therefore, premature withdrawal of FD does lead to lower returns for the depositor. Moreover, in the case of a few banks, if the FD is withdrawn prematurely prior to a minimum of six months from the day the account was opened, no interest is paid and the depositor will only receive the principal amount back.

Apart from the lower interest rate, premature closure of FD account also attracts a penalty which varies from one bank to another and can range from 0.5% to 1% of the account balance withdrawn. So while the option of premature withdrawal of FD can come in handy if you are faced with a financial emergency, the interest earned at the time of withdrawal in such cases will be low. To know the exact charges applicable on premature withdrawal of FD, you can use the FD premature withdrawal penalty calculator offered by some leading banks and NBFCs in India

Steps to Make Premature FD Withdrawal

Premature withdrawal of FD means that the depositor can close the FD before its term ends. However, to undertake the same, the depositor will have to pay the penalty to the bank.

• A premature withdrawal of FD means that a depositor chooses to close a Fixed deposit prior to the ending of its terms. However, in order to undertake the same, the depositor has to undergo a penalty payment to the bank, which can be calculated by FD premature withdrawal penalty calculator, which helps calculate the Fixed Deposit amount for the purpose of withdrawal of money prior to the maturity date, i.e., premature withdrawal of FD.

• The process can be initiated both offline as well as online. The fixed deposit can also be broken prematurely via net banking in case the investor is unable to pay a visit to the bank.

• Those who can physically access a bank can visit for premature offline closures and then submit the required documents and the Fixed Deposit receipt. If the process is conducted in the branch itself, it is vital that the fixed deposit receipt is submitted to the bank and signed by all the account holders.

• In case the receipt is misplaced, the form called ‘fixed deposit liquidation form’ needs to be filled by the holder of the account.

• Once filled and successfully submitted, the bank processes the requests and calculates the payable amount after levying a penalty and money is transferred to the personal account of the investor within a few hours to one working day.

FAQs

The process of withdrawing money from a FD (fixed deposit) account prior to the date of account maturity is referred to as premature withdrawal of fixed deposit.

Yes. Premature withdrawal of FD comes with a penalty of 0.5% to 1% on the maturity amount along with a lower interest rate received by the depositor. The depositor has to undergo a penalty payment to the bank, which can be calculated by the FD premature withdrawal penalty calculator, which helps calculate the Fixed Deposit amount for the purpose of withdrawal of money prior to the maturity date i.e., premature withdrawal of FD.

Yes. The premature withdrawal of FD can be made offline as well as online, for example, via net banking. Post the completion of the withdrawal process online, the money is transferred to the personal account of the investor within a few hours to one working day.

No. It is not possible to make partial or complete withdrawals from a 5-year tax saver fixed deposit. This is because, this type of fixed deposit account has a 5-year lock-in period in lieu of the tax benefits it provides depositors.

The penalty amount is usually 0.5% to 1% of the FD account balance. This penalty is typically charged in addition to the lower interest rate that is applicable in the case of premature FD withdrawals.

Yes. As per current rules, it is possible to prematurely withdraw a joint FD subject to applicable bank or NBFC FD premature withdrawal rules as well as subject to applicable premature FD withdrawal penalties.

ARN: May23/PWFD/24H

Sources:

economictimes.indiatimes.com/wealth/invest/a-single-account-holder-can-withdraw-a-joint-bank-FD-prematurely-heres-how-it-works-and-should-you-go-for-it/articleshow/84967768.cms

economictimes.indiatimes.com/wealth/save/how-interest-on-bank-fd-is-calculated-in-case-of-premature-withdrawal/articleshow/76995029.cms

www.icicibank.com/Personal-Banking/account-deposit/Tax-Saver-Fixed-Deposit/index.page

www.bankofbaroda.in/hi-in/banking-mantra/investment/articles/fixed-deposits-features-benefits-disadvantages

scripbox.com/fd/premature-fd-withdrawal-penalty/

www.financialexpress.com/money/premature-withdrawal-of-fd-how-interest-is-calculated-and-how-you-will-be-charged/2374496/

www.shriramcity.in/articles/what-is-the-procedure-of-withdrawing-FD-before-it-matures

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How to Initiate Premature Withdrawal of FD?

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What is A Fixed Deposit?