Fixed Deposits or FDs are a common mode of saving money and gaining interest on the long term. Let us assume that you need to withdraw an FD before maturity due to pressing situations. You cannot withdraw your money so easily. There are rules followed by banks, and there may be charges that lower your returns. If you are investing or are planning to withdraw your FD prematurely, this is what you should know.
Why People Choose Fixed Deposits
People invest in FDs in order to grow savings in a safe way. The idea is to get better interest over time while keeping the money secure. In comparison with the share market, FDs are low-risk and there is a fixed return. That’s why they are most preferred for long-term financial planning. But if unexpected expenses crop up, you might be forced to withdraw the FD prematurely.
What If You Break Your FD Prior to Maturity?
If you break your FD prior to its maturity of the desired time duration, banks, generally, cut a penalty on the interest. Thus, you will receive less than anticipated. The penalty that most banks impose is between 0.50% and 1% of the relevant interest rate. The sum is determined by:
- FD value
- FD’s maturity period
- The amount of time the FD was held before it was broken
- Bank policy
For example, if you withdraw a long-term FD early, some banks will lower your interest rate more aggressively.
SBI’s FD Penalty Charges
India’s largest government-owned bank, State Bank of India (SBI), has a straightforward policy:
- If your FD is ₹5 lakh or less, and you withdraw it prematurely, SBI cuts 0.50% from the interest.
- For FDs above ₹5 lakh and below ₹1 crore, the penalty is 1%.
Therefore, if you have to withdraw the money, anticipate lower interest than usual.
How to Avoid Penalties on FD Withdrawal
It does not have to be always loss in breaching an FD. There are smart ways to reduce penalties:
- Opt for Short-Term FDs: In case you might require funds in the near future, go for 6 or 12-month FDs rather than long ones.
- Plan FD Tenure Well: If you can predict huge expenses such as school fees or repairing a house, plan the FD tenure appropriately.
- You are not required to violate the FD in order to take out a loan against it. You can avail a loan against it because you can use it as collateral. Your fixed deposit stays untouched, and you keep earning interest on it.
Divide Your Investment into Multiple FDs
The genius idea is to split your quantum in the form of small FDs rather than keeping the whole in one. Suppose you have ₹5 lakh, open five FDs of ₹1 lakh each. At the time of requirement of money, you can encash one FD, not the whole. It saves you of your penalty and keeps other FDs earning interest.
Knowing the FD breaking rules, penalty fees, and interest loss is critical even if FD is a secure way to save. Always study the FD terms of your bank and organize your investment according to projected requirements. Today’s intelligent planning can safeguard your future savings