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Premature Withdrawal of Fixed Deposit

Premature Withdrawal FD

Last Updated 28th Nov 2021

  • Premature withdrawal of FD refers to withdrawal of FD before the end of the tenure.
  • Bank levies a certain charge on premature withdrawal of FD known as penalty.
  • Premature withdrawal can be done by either visiting the nearest bank branch or by opting for netbanking.
  • Premature withdrawal cost earning for the liquidity.
Bank Charges of premature withdrawal
SBI 0.50% to 1%
HDFC Bank 1%
ICICI Bank 0.50%-1%
Bajaj Finance 1%
PNB Housing Finance 4% on deposits upto 6 months and 1% for deposits above 6 months
Earn upto 6.95% on FD APPLY NOW

What is Premature Withdrawal

Premature withdrawal of the Fixed deposits refers to the withdrawal of the money in the fixed deposit account before the end of the tenure. It is done if the depositor requires cash on an urgent basis. Depositors can also withdraw the money in the fixed deposit before its maturity if there is an investment option which is better than the fixed deposit. One can opt for premature withdrawal either by visiting the nearest bank branch or by net banking.

Penalty on Premature Withdrawal of FD

Penalty refers to the charges levied by banks and financial institutes on the FD for withdrawal of the fixed deposits before the prematurity. The penalty is levied on the interest charged on the Fixed deposit. The main objective of premature withdrawal is to discourage frequent withdrawal and encourage the habit of saving.

FD without premature withdrawal facility

There are certain Fixed deposits which do not provide the option of the withdrawal facility. Under these FD customers are not provided with the option of premature withdrawal. Some of the FD without early withdrawal are as follow:

  • SBI Tax Saving Fixed Deposit
  • HDFC Bank 5 Year Tax Saving Fixed Deposit
  • Axis Bank Tax Saver Fixed Deposit
  • Fixed Deposit Plus
  • Kotak Bank Tax Saving Fixed Deposit

Premature Withdrawal of SBI Fixed Deposit

Rules related to the premature withdrawal of SBI Fixed deposits are as follow:

  • If customers want to make the premature withdrawal of the fixed deposits from State Bank of India before the completion of the tenure, the FD will attract the penalty of 0.50% across all tenures, below the amount of ₹ 5 Lakh.
    Example: If a customer with a fixed deposit of ₹ 4 Lakh wants to make a premature withdrawal, then he will be charged ₹ 2,000
  • In case of premature withdrawal of fixed deposits above ₹ 5 Lakh and up to ₹ 1 Cr, customers will be charged 1% across all tenures.
    Example: If a customer with a fixed deposit of ₹ 50 Lakh wants to make a premature withdrawal; then he will be charged ₹ 50,000 .
  • The interest will be 0.50% or 1% lower than that of the rate applicable at the time of the deposit or lower than the effective rate, whichever is lower.
  • No interest is paid for deposits that have remained with the bank for less than 7 days.

Premature Withdrawal of ICICI Bank Fixed Deposit

Rules related to the premature withdrawal of ICICI Fixed Deposits are as follow:
The interest rate charged for premature withdrawal of fixed deposits will be lower of:

Tenure of the Fixed Deposits Penalty below ₹ 5 Cr Penalty for ₹ 5 Cr and above
Less than 7 days No interest paid No interest paid
Less than 1 year 0.50% 0.50%
1 year to less than 5 years 1% 1%
5 years and above 1% 1.50%
  • The base rate for the contracted tenure for which the amount has been booked, or
  • The base rate of interest applicable for the period for which the amount has been invested with the bank.

Premature Withdrawal of HDFC Bank Fixed Deposit

Rules related to Premature Withdrawal of HDFC Bank Fixed deposits are as follow:

  • No interest is paid for deposits that have remained with the bank for less than 7 days.
  • The bank levies 1% penalty on the rates applicable for premature withdrawals, partial withdrawals and sweep-ins.
  • The effective interest rate is calculated as the lower of the rate applicable for tenure for which the FD remained in the bank or contracted rate of the FD.

Disadvantages of Premature Withdrawal

Premature withdrawal may seem the best option in case of the emergency, however, there are certain pitfalls related to the premature withdrawal:

  • Most banks charge a penalty against the premature withdrawal. The penalty levied by the banks on premature withdrawal hovers in the range of 0.50% to 1% of deposit amount.
  • By withdrawing the FD before the maturity date, the customer loses the opportunity to earn the benefits of FD interest rates such as losing upon a long term saving.
  • Unlike shares which are very volatile, Fixed deposits provide the guaranteed returns and are a reliable source of increasing wealth. Premature withdrawal may cause a strain in customer financial health. Further, early withdrawal can cause a considerable amount of uncertainty when one loses out on a source of finance.
  • Premature withdrawal is a very cumbersome process and takes time. The depositor is required to sign all the relevant documents and meet the concerned officer to get his FD account closed.

  • No penalty on premature withdrawal of FD
    Axis Bank on Monday announced the removal of penalty on premature closure of all new retail term deposits booked on or after December 15, 2020, for a tenure of 2 years or more. The new feature will apply to all new Fixed Deposits and Recurring Deposits if they are fully withdrawn within 15 days of investment. Further, the bank will not charge any penalty on the first withdrawal of upto 25% of the term deposit value. Officials say the waive off of penalty will offer flexibility & convenience to invest in the term deposits. “The objective of this customer-friendly feature is to inculcate and encourage retail customers to go for long-term savings without worrying about the sudden need for liquidity,” the bank said in a press statement.

FAQs

Can we withdraw money from a fixed deposit before maturity in SBI?

Yes, SBI provides its customers with the option to withdraw the money from fixed deposits before maturity. However, premature withdrawal attracts a penalty of 0.50% to 1%

How is the penalty calculated on premature withdrawal of fixed deposits?

The penalty amount charged upon the premature withdrawal of fixed deposits varies across all fixed deposit providers. The amount charged by the bank as a penalty is generally 0.50% for deposits less than ₹ 5 Lakh and 1% for deposits above ₹ 5 Lakh to ₹ 1 Cr

What happens if a fixed deposit is withdrawn before maturity?

The process of withdrawing the fixed deposits before maturity is known as premature withdrawal. When customers opt for premature withdrawal, he or she gets a lower rate of interest and also pays the penalty for the early withdrawal.

What is the penalty for breaking a fixed deposit in SBI?

SBI charges a penalty for premature withdrawal of FD. If the customer wants to make a premature withdrawal of his or her FD from SBI, he is required to pay a penalty of 0.50% to 1% across all tenures.


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