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Premature FD Withdrawal: Rules and Penalty Charges

July 05, 2025

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Premature withdrawal of Fixed Deposit (FD) means you partially or completely withdraw your deposit amount before the maturity period. Banks offer such facilities for callable FDs, where you can withdraw funds before the deposit tenure. However, there are certain implications of premature FD withdrawal.

In this blog, we have explained the advantages and disadvantages of early withdrawal of FDs. Before we move on, here's an interesting fact that you may not be aware of. As per RBI rules, you can now prematurely withdraw FD of up to ₹1 crore.

Advantages of FD Premature Withdrawal

Let us look at some pros of early FD withdrawals:

1. Immediate Access to Funds

Prematurely withdrawing your fixed deposit ensures that money is available right when you need it, offering a financial lifeline in urgent situations. For example, consider a situation of sudden medical emergency where quick cash is crucial.

2. Financial Flexibility

Premature withdrawal of fixed deposits provides you with the opportunity to adjust your investment strategy if needed, especially if you want to spread your lump sum FD into multiple FDs (FD laddering strategy) or if you're not happy with the interest rate offered by your current bank.

For example, if you have ₹15 lakh in a single FD with low returns, you can either withdraw the fund and reinvest in an FD with higher returns or break it into multiple FD accounts.

3. Paying Off Debts

If you have a high-interest debt accumulating and you need to reduce your financial burden, you can opt for premature withdrawal of fixed deposits. For example, if you owe ₹5 lakh at 12% interest, you can use your FD funds to clear this, saving you from paying higher interest against your loan.

Disadvantages of Premature FD Withdrawal

The cons of early FD withdrawals are:

1. Reduced Returns

Early FD withdrawal usually comes with penalty charges. With Ujjivan, if you withdraw your FD within 6 months from the time of deposit, 1% penalty would be levied on the prevailing rate basis of the tenure. Any withdrawals made after 6 months won't incur any penalties. Please note that early FD closure is applicable only for Callable FDs. Let's understand this with an example.

Let's say you have booked an FD for 1 year with Ujjivan. The applicable interest rate as on 19 June 2025 is 7.65%. Due to a medical emergency, you want to break your FD within 6 months (let's say 90 days). The applicable interest rate for 90-day Ujjivan FD is 4.65%. A 1% penalty fee would be levied on the 90-day FD. So, you will be eligible for 4.65% - 1% = 3.65% interest rate.

In another scenario, let's say you foreclose your fixed deposit within 1 year but after 6 months (9 months). The prevailing interest rate for a 9-month Ujjivan FD is 6.50% (data as on 19 June 2025). Since, you have foreclosed your account after 6 months, no premature withdrawal penalty fee would be imposed. So, you will be eligible to receive 6.50% interest rate on your deposit, 1.15% lower than the 1-year FD rate.

Tenure	Expected Interest	Withdrawal Date	Received Interest
1 Year	7.65%	90 days	3.65%
1 Year	7.65%	9 months	6.50%

Disclaimer: Interest rate as on 19 June 2025. Ujjivan SFB does not charge any premature withdrawal fee for any withdrawals made after 6 months from the time of deposit. For any doubt, please contact Ujjivan SFB.

2. Long-Term Goals Disruption

Early FD withdrawal can affect your financial journey, and impact the long-term goals and plans that you might have. Consider these before opting for a premature withdrawal of fixed deposit. You can use Ujjivan SFB Fixed Deposit Calculator to check your FD returns. That would give you a better idea about how much interest you may lose if you withdraw your FD early.

3. Penalties and Charges

As illustrated above, 1% premature penalty fee would be imposed on the prevailing interest rate pertaining to the tenure, if you foreclose your FD before the maturity date. The best part of opening a fixed deposit with Ujjivan Small Finance Bank is that no penalty charges are imposed if you break your FD after 6 months from the time of 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 FD, 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.

Final Thoughts

While there are several reasons to opt for an early FD withdrawal, it's crucial to weigh in the potential downsides like lost interest income and penalties. Consider all the factors before opting for premature FD withdrawal.

For maintaining a robust financial health without frequent disruptions to your investment plans, consider exploring what Ujjivan Small Finance Bankoffers in terms of fixed deposits. Visit our website now and start investing in your choice of FD.

Disclaimer:

The contents herein are only for informational purposes and generic in nature. The content does not amount to an offer, invitation or solicitation of any kind to buy or sell, and are not intended to create any legal rights or obligations. This information is subject to updation, completion, amendment and verification without notice. The contents herein are also subject to other product-specific terms and conditions, as well as any applicable third-party terms and conditions, for which Ujjivan Small Finance Bank assumes no responsibility or liability.

Nothing contained herein is intended to constitute financial, investment, legal, tax, or any other professional advice or opinion. Please obtain professional advice before making investment or any other decisions. Any investment decisions that may be made by the you shall be at your own sole discretion, independent analysis and evaluation of the risks involved. The use of any information set out in this document is entirely at the user’s own risk. Ujjivan Small Finance Bank Limited makes no representation or warranty, express or implied, as to the accuracy and completeness for any information herein. The Bank disclaims any and all liability for any loss or damage (direct, indirect, consequential, or otherwise) incurred by you due to use of or due to investment, product application decisions made by you on the basis of the contents herein. While the information is prepared in good faith from sources deemed reliable (including public sources), the Bank disclaims any liability with respect to accuracy of information or any error or omission or any loss or damage incurred by anyone in reliance on the contents herein, in any manner whatsoever.

To know more about Ujjivan Small Finance Bank Products Visit:"https://www.ujjivansfb.in"

All intellectual property rights, including copyrights, trademarks, and other proprietary rights, pertaining to the content and materials displayed herein, belong

to Ujjivan Small Finance Bank Limited or its licensors. Unauthorised use or misuse of any intellectual property, or other content displayed herein is strictly prohibited and the same is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person’s nationality, residence or otherwise) be contrary to law or registration or would subject Ujjivan Small Finance Bank Limited or its affiliates to any licensing or registration requirements.

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FAQs

1) What is an early FD withdrawal?

Premature withdrawal of fixed deposit is a situation when you withdraw money from your fixed deposit before its maturity date. This facility is usually available for callable FDs - fixed deposit schemes that don't come with any lock-in period.

2) Are there penalties for premature withdrawal?

Yes, most banks charge a penalty usually up to 1% which might reduce the overall interest earned. Kindly contact your bank for more details.

3) Can I partially withdraw from my fixed deposit?

Some banks allow partial withdrawals without closing the entire FD account. Check with your bank for more information.

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Premature FD Withdrawal: Rules and Penalty Charges