BAJAJ BROKING
March 12, 2025
8 mins read
Fixed deposits are popular sources of investment for investors willing to take minimal risks yet wanting to earn profits and make their portfolio look well-rounded. With such investment, you ensure fixed returns at a pre-set interest rate without worrying much about the market risks. Fixed deposits are generally of two types: first, that come with a premature withdrawal facility and second, without the same.
Typically, the amount deposited in your fixed deposits or FD is locked, meaning they cannot be withdrawn anytime you want. However, in case you urgently need the funds, you may terminate your deposit or avail of a premature withdrawal facility. This feature that allows you to remove the money from your account before a pre-set maturity date is termed premature withdrawal. However, it is important to understand that such premature withdrawals of fixed deposits face a general penalty.
Understanding the feature, the penalty, and the procedure for withdrawal can come in handy for individuals looking for premature withdrawal in times of emergency. Read on as we explore premature withdrawal in detail, its reasons, procedure, alternatives, and more to help make you an informed choice. This will also help you understand the impact of such withdrawals on your savings and overall financial goals.
Before we go any further and explore the process in detail, let's first understand the basics. What is the premature withdrawal of a fixed deposit? Well, as mentioned earlier, premature withdrawal of fixed deposits can be simply understood as the process when you make early withdrawals from your fixed deposit before a pre-set maturity.
Now, you may wonder about the reasons for premature withdrawals. Well, you may need to avail this feature for a variety of reasons. Here are some of them, consider giving it a look.
In Case You Need Immediate Access to Funds
When you're opting for premature withdrawal of FD, it means you're going to have the funds to yourself when you need it the most. This can prove to be financial support while dealing with emergencies. For example, consider dealing with a medical urgency which needs immediate cash, premature withdrawals in that case can help.
For Adjustment of Financial Objectives
You may also choose to prematurely withdraw your FD in case you're looking to adjust your financial objectives. For example, say you want to spread your FD’s total amount into different fixed deposits. Or you simply aren't satisfied with the rate of interest provided by your bank on these FDs.
For example, say you have an FD with ₹20 lakhs in it, however, the interest rate on the same is quite lower. Now, you may withdraw the amount and invest the same into different FDs or simply choose a new FD with a comparatively higher interest rate, thus offering better returns.
To Settle Off Your Debts
You can also prematurely withdraw your FD to settle off your debts. This can ultimately prove quite helpful in reducing your financial burden.
Now that you know what is the premature withdrawal of a fixed deposit and what can be a few possible reasons to avail of this facility, let's move forward.
When it comes to premature withdrawals of FD, one of the most frequently discussed topics is the penalties associated with the same. Let's understand this in detail.
As per the Reserve Bank of India, banks are allowed to charge a certain penalty in case of early withdrawals of FD.
Generally, the banks charge anything between 0.5% to 1% of the rate of interest on these early withdrawals. However, it is important to ensure that customers are aware of this penalty fee before opening their FDs.
In some cases, like emergency situations, certain banks don't charge any penalty fee. However, the nature of your emergency is subject to verification.
Additionally, in case of early closing of an account by the customer, the interest rate is reduced from what was granted earlier. For example, say a customer withdraws before the passing of the full year; in that case, they might now get 6% of annual interest instead of the 8% interest rate.
If you've read until here, chances are you might be looking to initiate a premature withdrawal of a fixed deposit. Well, worry not. Here is your step-by-step guide on how to initiate premature withdrawal.
Consider signing in to the customer portal. You may use your registered phone number and OTP for the same.
Here, you'll be able to see your details, cross-check the same and click on ‘raise a request'.
Now, choose ‘fixed deposit’ and your fixed deposit number.
Here, select your query type as ‘prematurity’.
Fill in the necessary details and complete your request by clicking on ‘submit’.
In case of an offline withdrawal, you might need to visit the closest branch and submit your FD receipt with the necessary documents.
As mentioned, when it comes to popular tools of investment, FD is a preferred choice because of a variety of reasons. It helps you save for longer durations, helps you earn steady interest rates, and comes in handy to meet long-term goals.
However, in cases of emergency or financial crunch, you might need to break off or prematurely withdraw from your FD. This will expose you to penalty fees, reduction in your interest rates, disruption in your long-term financial planning, and other complications. So, why not consider looking for a few methods that can help you solve your financial crunch at times of emergencies minus the penalty hassle?
Well, here are some alternatives to premature withdrawal of fixed deposit. Consider giving it a look.
Multiple FD Accounts
FD laddering is a strategy where investors spread their FD investments across different tenures (e.g., 1 year, 3 years, 5 years) to ensure liquidity and better interest rate benefits over time, reducing the need for premature withdrawals. This ensures you hold long as well as short-term accounts that can help you maintain liquidity without opting for premature withdrawals.
Sweep-in Facility
Some banks allow a sweep-in facility where you may credit an additional amount. The tenure for your sweep-in account may range from 1 to 5 years, however, you might also need to open an FD with at least ₹25,000 in it. However, by availing of this feature, you ensure you may immediately withdraw money anytime you need without impacting your regular account and investments. You need not to pay a penalty as well.
Loan Against Your Fixed Deposits
Rather than opting for premature withdrawals, you can also choose to opt for a loan against your FD amount. Several lenders offer such services with an interest of one to two per cent. The interest rate may vary from lender to lender.
Premature withdrawal of a fixed deposit may look like a viable option in case of emergencies when you need immediate funds. However, it is important to understand that unless necessary, the same can negatively impact your interest earnings and overall returns.
Say you opened a fixed deposit for 3 years. However, you choose to prematurely withdraw your FD after one year. In that case, you'll be getting the interest rate of one year fixed at the time of opening your account. Additionally, such withdrawals also negatively impact the interest compounding. In addition to that, your financial growth is hampered and you attract the penalty. Therefore, unless it's necessary, consider going for alternate options like FD laddering, cash reserves or more to meet your immediate needs which can help you avoid withdrawing prematurely.
When it comes to premature withdrawal of fixed deposits, different banks have different sets of policies for the same. Let's have a quick look.
Banks | Premature Withdrawal of Fixed Deposit |
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Premature withdrawal on fixed deposits can prove helpful when tackling an emergency or financial crunch situation. However, it might impact your earnings. Thus, it is important to understand the provisions and penalty fee before applying for such withdrawals. You may also consider looking for alternative methods and see if they can help.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Premature withdrawal of fixed deposits can be simply understood as the process when you make early withdrawals from your fixed deposit before a pre-set time of maturity.
Different banks have different penalties for early withdrawal of an FD. Generally, the banks charge anything between 0.5% to 1% of the rate of interest on these early withdrawals.
To apply for premature withdrawal online, you may follow these steps.
Consider signing in to the customer portal.
Now, use your registered phone number and OTP to proceed further.
Next, cross-check your details, and scroll to ‘raise a request’.
Click on ‘fixed deposit’ and pick your FD number.
Now choose your query as ‘prematurity’.
Fill in the essential information and click ‘submit’.
Yes, there are several alternatives to breaking an FD prematurely. You may consider options like FD laddering, where you invest in different FDs that have different maturity periods. Thus, in case of need, you may consider relying on FDs with short tenure rather than breaking the long-term FD. In addition to this, you may also go for a loan against FD, sweep-in facility, and more.
Early or premature withdrawal for FDs can negatively impact the interest earnings. Not only do they reduce your interest but overall returns. In case of premature withdrawals, you'll be getting the interest rate fixed at the time of opening your account.
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