Premature Withdrawal

What is Premature Withdrawal of Fixed Deposit (FD)?

Premature withdrawal of a Fixed Deposit (FD) is the closure of the deposit before its maturity date. Though it offers liquidity during emergencies, it usually incurs a penalty and lower interest rates.

Rules for Premature FD Withdrawal

• Most banks and NBFCs permit premature withdrawal, but there is a penalty.
• Interest is computed on the actual period for which the FD was held.
• Some FDs, for example tax-saving FDs do not allow any withdrawal.

Penalty for Premature FD Withdrawal

Generally, in the range of 0.5% to 1% of the rate of interest payable for the tenure completed.
That lesser rate of prevailing market rate if the rate applied for actual period is less than the booked rate.

How to Withdraw FD?

Online Procedure:

• Login into your bank's net banking or mobile application.
• Open the FD section and click on premature withdrawal.
• Click on the FD, an option appears that allows the money to get transferred into the linking account.

Off-line Process:

• Go to that branch where an FD was actually opened
• Submit application with all details and get the receipt copy of FD in your hand
  the bank then will process an application and it gets the same amount credited inside the account as well

Is Premature FD Withdrawal Taxable?

• TDS (Tax Deducted at Source) is applicable only if the interest exceeds ₹40,000 for the financial year, ₹50,000 in case of a senior citizen.
• The withdrawn amount is not separately taxed but forms part of the total income

Alternatives to Avoid Penalty

1. FD Laddering: Dividing your investment into multiple FDs of varying tenures ensures better liquidity
2. Partial Withdrawal: Some banks allow partial withdrawal of the amount from the FD while keeping the rest intact.
3. Loan Against FD: Instead of breaking the FD, you can avail loan of up to 90% of the deposit amount.