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Premature FD Closure: Understand the Costs and Alternatives Before You Withdraw!
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News18•26-09-2026, 09:00
Premature FD Closure: Understand the Costs and Alternatives Before You Withdraw!
- •Prematurely closing an FD can lead to reduced interest rates and penalties, impacting your returns.
- •For a 2-year FD at 7% interest, withdrawing after 10 months might result in only 5% interest due to penalties.
- •An example shows a Rs. 5 lakh FD for 2 years, if prematurely closed after 10 months, could lose approximately Rs. 51,000 compared to maturity.
- •Bank rules vary; some reduce interest, some impose penalties, and some do both, so always check with your bank.
- •Instead of breaking an FD, consider taking a loan or overdraft facility against it to meet urgent financial needs.
Key Questions Answered
When an FD is closed before maturity, the bank reduces the interest rate based on the actual duration the money was held, rather than the original contracted tenure, and may also deduct an additional penalty percentage.
For a Rs. 5 lakh FD at 7 percent interest withdrawn after 10 months with a 1 percent penalty applied on a 6 percent rate, you receive about Rs. 5.21 lakhs instead of the full maturity value of Rs. 5.72 lakhs, resulting in a loss of roughly Rs. 51,000.
Yes, instead of breaking your FD, you can obtain a loan or overdraft facility from the bank using the deposit as collateral, though you should check the applicable loan amount and interest rates first.
