Due to their guaranteed returns and assurance of the principal amount, fixed deposits are a common investment vehicle among investors. Nevertheless, because life may be unpredictable, there may be instances where one must withdraw money from their fixed deposit before it matures.
If depositors prematurely withdraw from a fixed deposit, the bank may charge them a penalty fee, which might lower their investment’s returns. Thus, understanding the process of breaking a fixed deposit before maturity and the associated charges is crucial. By being aware of the procedure, fixed deposit maximum amount for withdrawal, and the associated fees when breaking the FD, depositors may make an informed choice and avoid unpleasant surprises.
What is Premature Withdrawal?
When a fixed deposit (FD) is withdrawn before its maturity date, the procedure is called premature withdrawal. Premature withdrawal could occur due to low interest in FD or unanticipated events, such as an urgent financial problem. Even though fixed deposits have a lock-in period, early redemption is possible. However, the premature withdrawal of an FD is subject to some penalties or fixed deposit maximum amount withdrawal limit, which can differ from bank to bank.
However, the penalties for fixed deposit withdrawal before maturity are subtracted from the redemption or final interest payment amount. Before withdrawing the FD, depositors must be informed of the process and the penalties since they might drastically lower overall earnings.
Process of Breaking an FD before Maturity
Fixed deposit withdrawal before maturity can be done online or offline; the process could vary from bank to bank.
To break the FD offline, follow the below steps:
- First, to withdraw money from the fixed deposit account, visit the nearest bank branch where the account was opened.
- Complete the withdrawal form and provide the required documents, such as proof of identity, deposit certificate, and photographs.
- Once the documents have been verified, the funds will be transferred to the savings bank account.
For a simple and hassle-free withdrawal process, ensure having all the appropriate documentation and details before going to the bank.
To break the FD online, follow the below steps:
- Visit the bank’s website and log in to the net banking account using credentials.
- Under your account, select the ‘Fixed Deposit’ option.
- Choose the fixed deposit account for withdrawal.
- Look for the ‘premature withdrawal’ option and click on it.
- The premature withdrawal details will be displayed on the screen, and depositors can choose the account to which they wish to transfer the funds.
- Finally, click on ‘Submit’ to complete the withdrawal process.
Remembering that the premature withdrawal procedure might change based on the bank and the net banking platform is vital. Thus, it is essential to contact the bank in advance for explicit instructions and suggestions.
Penalty Charges for Premature Withdrawal of FD
Most banks impose a penalty fee if depositors prematurely withdraw their fixed deposit before maturity. Depending on the bank and the length of time the fixed deposit was kept, the penalty might be up to 1% of the interest rate. Thus, the effective interest rate of the fixed deposit is reduced by this penalty.
To determine how much money one will get when opting for a premature withdrawal, one can use the FD premature withdrawal penalty calculator. Making an informed decision about whether or not to take an early withdrawal of the FD is made possible by utilising this tool, which calculates the amount depositors will get after subtracting the penalty charges.
It is crucial to remember that there are several circumstances in which depositors could not face the consequences of breaking their fixed deposit early. For a fixed amount of time, some banks may exclude the fixed deposits of specific client categories from the penalty. It is crucial to contact the respective bank to find out if there are any exceptions or unique requirements that can apply to one’s fixed deposit account. Making this decision will allow for maximising the investment and avoiding penalty fees.
Premature withdrawal from a fixed deposit is typically not advised; however, there may be instances where it is impossible to prevent. To prevent having to make early withdrawals, one must ensure that they have a solid emergency reserve in place since such withdrawals would penalise the deposit interest and throw the investing objectives off course. Consequently, the best action is to prevent early withdrawals through careful preparation.