Fixed deposits are a popular choice for cautious investors looking for stable returns. They provide greater interest rates than typical savings accounts, but there is a catch: they have a lock-in period that restricts your ability to access your money. However, premature fixed deposit withdrawal is possible, but bear in mind that penalties may be involved.
Breaking a fixed deposit account before maturity
Offline withdrawal
To withdraw your fixed deposit prematurely offline, you must go to the bank branch that is closest to you. Once there, you must fill out a form, provide supporting documents and surrender your fixed deposit receipt. It is important to note that certain banks only allow online withdrawals for deposits that were initially booked online. Additionally, you must have internet banking enabled to make online withdrawals.
Online withdrawal
If you meet the criteria for online withdrawal, you can conveniently access this option. Through the bank’s internet banking facility, you can initiate the premature withdrawal process from the comfort of your own home. Follow the instructions on the bank’s website or mobile app, and you will be guided through the necessary steps to complete the withdrawal.
Factors to consider and penalties involved
Before deciding to break your fixed deposit prematurely, consider a few factors. Firstly, fixed deposits have a predetermined lock-in period, which means you can access your funds on the maturity date unless you opt for premature withdrawal. Also, remember that the interest rates offered on fixed deposits are usually fixed for the entire tenure. So, if you withdraw your deposit early, you may miss out on the actual interest that would have accrued had you held the deposit until maturity.
Furthermore, being aware of the penalties involved in premature withdrawal is crucial. Financial institutions impose penalty charges to compensate for the inconvenience caused by early withdrawal. These charges can reduce the effective interest rate on your fixed deposit, affecting the overall returns you receive.
Premature withdrawal charges of leading banks
State Bank of India: Penalty on FD premature withdrawal
According to the SBI website, if you withdraw a term deposit of up to Rs five lakh prematurely, the penalty will be 0.50% of the deposit amount for any duration. For term deposits above Rs five lakh, the penalty will be 1% of the deposit amount for any duration.
HDFC Bank: Penalty on FD premature withdrawal
As per the HDFC Bank website, there is a penalty of 1% on the applicable interest rate for premature withdrawals, including sweep-ins and partial withdrawals. However, this penalty is not appropriate for FDs booked for a tenor of seven to 14 days.
PNB: Penalty on FD premature withdrawal
According to the PNB website, if you cancel or partially withdraw a domestic term deposit prematurely, a penal interest of 1% will be charged for all tenors. The interest rate payable will be the contractual rate minus 1% or the rate applicable on the contractual date for the tenor minus 1%, whichever is lower.
ICICI Bank: Penalty on FD premature withdrawal
Interest will be accumulated in addition to any applicable penalties at the lower of the contracted rate or the rate in force at the time of deposit. Deposits with less than one year of maturities and amounts less than Rs five crore will be subject to a 0.50% penalty. For stays of one year to five years or more, there is a 1% penalty.
Yes Bank: Penalty on FD premature withdrawal
If you close your FD within 181 days, Yes Bank imposes a penalty of 0.50% of the deposit amount. For tenures of 182 days or more, a penalty of 0.75% will be charged. However, senior customers are exempted from any penalty for early withdrawals.
Note: The penalty charges mentioned are subject to change, and it is advisable to refer to the respective bank’s official website or contact them directly for the most up-to-date information.
Drawbacks of premature withdrawal
- Penalty fee: Most banks impose a penalty that reduces the accrued interest, diminishing your overall profit.
- Loss of interest: Withdrawing before maturity means you will receive a partial amount based on the promised interest rate and duration at the time of investment. It is because the withdrawal occurs before the intended tenure.
- Lengthy procedures: The process of withdrawing your FD can be time-consuming. While some financial institutions offer online withdrawal applications, others may require a visit to their branch in person. The duration for completion can vary from 48 hours to a week.
FAQs
Why do banks charge penalties for premature withdrawal?
Banks impose penalty charges to discourage frequent withdrawals and encourage disciplined savings. These penalties compensate for the inconvenience caused and may affect the overall returns received.
What is the typical range of penalty charges for premature withdrawal?
The penalty charges for premature fixed deposit withdrawals usually range from 0.5% to 1% of the principal amount.
What factors should I consider before breaking a fixed deposit prematurely?
Before deciding on premature withdrawal, consider the predetermined lock-in period, the fixed interest rates for the entire tenure and the potential loss of accrued interest if withdrawn early.
Are there any banks that allow premature withdrawal without penalty fees?
Yes, some banks provide the flexibility of withdrawing fixed deposits without imposing penalty fees. However, this may vary depending on the bank's policies and specific terms and conditions.
Can I negotiate the penalty charges for premature withdrawal with the bank?
The bank typically fixes the penalty charges for premature withdrawal, which may not be negotiable. However, it is worth discussing the possibility with your bank to explore any options or exemptions they may offer in some instances.
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