What Happens When You Withdraw Fixed Deposit Before Maturity

 What Happens When You Withdraw Your Fixed Deposit Before Maturity

So many people invest their savings in Fixed Deposits (FDs). It is one of the most popular investment options for millions in India. You may have also invested in an FD and must be excited about earning a fixed return on your investment and watching your money grow. But life is unpredictable. Circumstances can change from time to time and you may need to withdraw or ‘break’ your FD before its maturity date. You might be wondering how to go about it and what a premature withdrawal means for the money you have invested.

In this post, we will explore the consequences of premature withdrawal of a fixed deposit and provide you with some essential insights. Let's uncover what awaits you when you choose to withdraw your FD prematurely.

Understanding Premature Withdrawal

A Fixed Deposit is a financial instrument offered by banks and other financial institutions that lets investors deposit a lump sum amount for a specified period at a fixed interest rate. The predetermined tenure assures a fixed return on the investment. However, there may be a time when they need to access the funds before the maturity period.

When you withdraw your FD before its maturity date, it is considered a premature withdrawal. Financial institutions usually have provisional policies in place for such cases as they need to tackle their own set of macro-financial issues like balance the interests of the depositors and maintain their own liquidity. In the next section, we will take a closer look at what happens when you choose to withdraw your FD prematurely.

The Consequences of Early Withdrawal: Why FD Maturity Matters

Penalties and Charges

The first thing you need to be aware of is the applicable penalties and charges for premature withdrawals. The exact amount varies from one institution to another but it typically involves a reduction in the interest rate. Banks do this to compensate for the loss they incur due to the early withdrawal. The interest rate reduction could range from 0.5% to 1% and in some cases it might even be higher. It is crucial to read the terms and conditions of your FD agreement to understand the specific penalties and charges that apply.

Effect on Interest Earned

One of the main advantages of an FD is the compound interest they offer. Compound interest means that your interest earnings are reinvested and added to the principal amount, resulting in higher returns over time. When you withdraw your FD prematurely, the interest calculation is usually adjusted accordingly. This means that you may lose a portion of the interest you would have earned if you had kept the deposit until maturity.

To get an estimate of the impact on your interest earnings, you can use an FD Compound Interest Calculator.

These online tools take into account the principal amount, interest rate, tenure and premature withdrawal penalties to provide you with an approximate calculation. The actual interest lost may differ slightly as some banks have their own methods of calculating the reduced interest.

Tax Implications

Another aspect to consider when withdrawing your FD prematurely is the impact on your tax liabilities. The interest earned from these deposits is subject to tax and the tax is deducted at source (TDS) by the bank. However, when you withdraw your deposit before maturity, the TDS is adjusted based on the reduced interest rate applicable to premature withdrawals.

This means that the TDS amount might be recalculated which may lead to potential fluctuations in your tax payments. It is advisable to consult a tax professional to understand the tax implications and any necessary adjustments you need to make.

Impact on Future Loan Eligibility

FDs are often considered as a collateral for securing loans such as Personal Loans or Home Loans. When you withdraw your FD prematurely, it might impact your eligibility for future loans. Banks evaluate your creditworthiness based on various factors including your financial stability. Having a premature withdrawal history could raise concerns about your ability to manage financial commitments and may affect your loan approval chances or the terms and conditions offered by the bank.

Additionally, banks may view the premature withdrawals as a sign of financial instability or urgency which could impact their evaluation of your creditworthiness. It is important to remember that a healthy financial track record which includes maintaining FDs until maturity can positively influence your credit profile and enhance your eligibility for favourable loan terms in the future.

 Unveiling ICICI Bank's Premature Withdrawal Policy: What You Need to Know

We offer FDs with attractive interest rates as high as 7.80% p.a. for Senior Citizens (over 60 years of age) and up to 7.25%  p.a. for people below 60 years of age. If you need to withdraw your FD early, here's what you should know:

Penalty rates: Penalty rates are levied based on the actual tenure of the deposit (fund held with the Bank). For deposits less than Rs. 5 crore, the penalty is 0.50% for withdrawals before 1 year, 1.00% for 1 to 5 years and 1.00% to 1.50% for 5 years and above.

Non-Resident External (NRE) deposits: Closing an NRE deposit within a year incurs no interest payment or penalty.

Considering these charges, it is crucial to check the impact on your returns before withdrawing early. Explore alternatives like loans or partial withdrawals for a more favourable outcome.

Each bank has specific terms. Review the details or consult our representatives for accurate information. While we offer attractive FD options, understand the charges to make the best decision for your finances and maximise your returns.

If It’s “Fixed”: Try not to Break It 

Navigating the workings of long-term investments like FDs can be both rewarding and sometimes challenging. As we have explored, premature withdrawal of an FD can have significant consequences. It is crucial to carefully evaluate your options before making any hasty decisions. Maintaining a healthy financial track record and holding the deposit until maturity is essential for establishing your creditworthiness and maximising your returns.

Check out our lucrative Fixed Deposit interest rates which help you to increase your wealth and achieve your financial goals. Don't miss out on the opportunities that FDs can provide. Visit our website or connect with our representatives today!

Don't let impulsive decisions overshadow the benefits of long-term financial planning. Take the time to analyse your situation, consult with professionals if needed and make informed choices when it comes to your FDs.