Premature FD Withdrawal: Rules and Penalty Charges

*Interest rate as on 5 September 2024.

The prevailing interest rate for a 1-year FD is 8.25%. However, the person opted for premature closure i.e. 90 days. Prevailing interest rate for a 90-day FD is 4.75%. However, a 1% penalty would be levied because the withdrawal was made before 6 months from the time of deposit. Hence, the person would eligible for 3.75% interest.

In the second situation, the person has closed the FD within 1 year but after 6 months. As per Ujjivan SFB's policy, no penalty fee would be levied. However, the person would be eligible for only the prevailing interest rate as applicable for 8-month tenure, which is 7%.

2. Penalties and Charges 

Early FD withdrawal usually comes with penalty charges. With Ujjivan, if you withdraw the amount within 6 months, you may have to pay a penalty of up to 1% on the prevailing rate basis of the tenure. For example, if you have booked an FD for 1 year, the prevailing interest rate as on 5 September 2024 is 8.25%. However, if you close the FD after 60 days from the time of deposit, you will receive 3.25% as interest. Here's how it's calculated:

• Prevailing Interest Rate for 60 days: 4.25%
  
  
• Premature withdrawal penalty before 6 months: 1%
   
• Eligible interest rate: 3.25%

Point to note: Ujjivan SFB does not levy any premature penalty for withdrawals made after 6 months from the time of deposit.

3. Long-Term Goals Disruption 

Early FD withdrawal can affect your financial journey, and impact the long-term goals and purchase plans that you might have made for yourself. Consider these before opting for a premature withdrawal of fixed deposit.  

Do All Fixed Deposits Offer Premature Withdrawal?

Premature FD withdrawal is only applicable for callable Fixed Deposits. Such Fixed Deposits don't come with any lock-in period. However, this facility is not applicable for non-callable FDs like PLatina Fixed Deposit, where you cannot withdraw funds before the stipulated lock-in period. But there are certain exceptions. 

As per RBI guidelines, depositors can prematurely withdraw funds from non-callable FDs during specific situations like bankruptcy, court order, business liquidation, or the depositor's demise. However, the penalty could be higher for premature withdrawal of non-callable Fixed Deposits.

Should You Opt for Premature FD Withdrawal?

When you invest in Fixed Deposit, you should try to invest keeping your long-term goals in mind. Premature withdrawal of FD can have significant consequence including loss of interest income. This may disrupt your financial goals. 

Of course, if there’s an emergency and you need immediate cash, you can opt for early withdrawal of deposit. But, staying invested for the long-term can help you benefit from the power of compounding (earning interest on interest). Consider these factors before deciding.