After the Reserve Bank reduced the repo rate from 6.50% to 6.25%, discussions about a possible reduction in FD interest rates have intensified. This has raised concerns among people who have invested large amounts in fixed deposits.

Many investors are considering withdrawing their premature FD and investing in financial tools with better returns. However, making this decision in a hurry without proper planning can lead to losses. Investors should be aware that banks impose a penalty on premature FD withdrawals. In some cases, this penalty can be waived, but only under specific conditions. Therefore, it is important to carefully evaluate the situation before making any decisions.

Penalty on Premature FD Withdrawal May Be Waived

The penalty for premature withdrawal of an FD can be waived under certain conditions, such as reinvesting the amount in a long-term FD with the same bank. Before making any decision, investors should check their bank’s penalty structure and the interest rates applicable on premature withdrawals. Different banks have different penalty rules, usually ranging between 0.5% to 1%.

SBI’s Penalty on Premature FD Withdrawal

The State Bank of India (SBI) imposes a 0.5% penalty on premature withdrawal of term deposits up to RS 5 lakh. For deposits above RS 5 lakh, the penalty is 1%.

Penalty Rules for Other Banks

  • Punjab National Bank (PNB): If an FD is withdrawn before maturity, PNB will pay 0.5% or 1% less interest than the applicable FD rate.
  • HDFC Bank: On premature FD withdrawals, HDFC Bank deducts 1% from the interest rate applicable to the deposit.
  • Before withdrawing an FD, investors should check their bank’s specific penalty policies to avoid unnecessary losses.

How to Break a Fixed Deposit Before Maturity?

If you need urgent funds, you can withdraw your Fixed Deposit (FD) before maturity. However, a penalty ranging from 0.50% to 2% may apply. Once the FD is withdrawn, the amount is transferred to your savings account. Below is the step-by-step process for both offline and online premature FD withdrawal.

Procedure for Offline FD Withdrawal

  • Visit the nearest branch of the bank where your FD account is held.
  • Ask for a withdrawal form and fill it out with details such as name, bank account number, PAN, etc.
  • Submit the form along with ID proof, a photograph, and the deposit certificate.
  • Once the bank approves your request, the FD amount will be credited to your savings account.

Procedure for Online FD Withdrawal

  1. Visit your bank’s official website.
  2. Log in to your net banking account using your credentials.
  3. Go to the Fixed Deposit section.
  4. If you have multiple FD accounts, select the FD you want to withdraw.
  5. Click on the Premature Withdrawal option.
  6. Choose the savings account where you want to transfer the withdrawn FD amount.
  7. Click Submit, and the FD amount will be credited to your savings account.