Can I Break My Fixed Deposit Before Maturity?
Popular investment instrument, Fixed Deposits (FD) allow investing a lump sum for a fixed period to get a fixed rate of interest. But can one break it to withdraw the deposited amount before the maturity date? Yes, one can break the fixed deposit before maturity. However, it comes with certain conditions. Read through to get into the details of the premature withdrawal of FD.
Breaking FD, What Does It Mean?
Breaking a fixed deposit means, withdrawing money before the fixed maturity date, which is also called the premature withdrawal of FD. People usually opt for to break FDs if they are in need of immediate funds or find better investment opportunities. According to the directives of the Reserve Bank of India, it is permissible to repay the term deposits before maturity.
If one wants to break FD before the term ends, the interest will be paid as per the rate applicable on the date of deposit for the period the amount was with the bank. It means, if the applicable rate of interest at the time of FD account opening is 6.5%, you will only earn 6.5% interest per annum for your deposits, but not the original rate. However, the premature closure penalty would be charged by the bank. And no interest may be earned, if the premature withdrawal happens before the minimum period prescribed for the completion.
How Much Will Be The Premature Closure Penalty?
The premature closure penalty of FDs may vary from bank to bank. Some banks may waive off the penalty if the withdrawal is due to the liquidation for some emergency. However, the word emergency is not well defined and may differ from cases-to-case. Otherwise, normally, banks levy a penalty in the form of 0.5% to 1% lower interest on customers who want to close FDs.
In simple, banks have the freedom to determine the penalty for premature FD withdrawal. However, the depositors are to be made aware of the applicable penalty rate along with the deposit rate.
Procedure to break Fixed Deposit:
Submit fixed deposit advice (or certificate, receipt) duly signed by all account holders, at the branch for premature liquidation. Or Submit the Fixed Deposit Liquidation form. Or Apply for online withdrawal, if made deposits through Net Banking.
If the original FD is nearing maturity, it is better to continue and reinvest after the maturity. Breaking a FD can be considered if it is relatively new. Whatever you decide to do should be followed after a thorough analysis and proper calculation. If you feel you need more personal finance advice, approach ArthaYantra – World’s full-service robo-advisory. We strive to change the way personal finance is perceived and delivered in India.