Fixed deposits prove to be an ideal investment option when you have a decent amount of surplus amount in hand and do not have a definite plan for it.
However, emergencies and circumstances can knock your door uninvited; and can make you consider breaking a Fixed Deposit prematurely.
Let us help you understand how to go about with it. You should factor in some consideration or know how to calculate the interest for a prematurely withdrawn fixed deposit.
However, emergencies and circumstances can knock your door uninvited; and can make you consider breaking a Fixed Deposit prematurely.
Let us help you understand how to go about with it. You should factor in some consideration or know how to calculate the interest for a prematurely withdrawn fixed deposit.
What does a Premature withdrawal of a Fixed Deposit mean?
Fixed Deposit, as the name suggests is when the investor locks in a definite amount for a fixed period. A certain amount of interest is earned from it on completion of the period defined while signing up for it.
However, due to any circumstances if you decide to withdraw the money before the completion time period you had initially signed up for; it is called as a premature withdrawal of a Fixed Deposit. In such case the bank lets you withdraw the money. However, they charge you with a premature closure penalty. This penalty amount might differ case to case as it completely depends upon the minimum period defined for completion.
Fixed Deposit, as the name suggests is when the investor locks in a definite amount for a fixed period. A certain amount of interest is earned from it on completion of the period defined while signing up for it.
However, due to any circumstances if you decide to withdraw the money before the completion time period you had initially signed up for; it is called as a premature withdrawal of a Fixed Deposit. In such case the bank lets you withdraw the money. However, they charge you with a premature closure penalty. This penalty amount might differ case to case as it completely depends upon the minimum period defined for completion.
How Much Will Premature Closure Penalty be Levied?
Like mentioned earlier, the penalty levied on an individual completely depends upon the bank to bank. However, on an average, banks charge anywhere between 0.5% to 1% as premature closure penalty. Having said that, there could be chances that the bank may completely do away with the penalty if the withdrawal is close to the maturity of the FD.
Also, if the withdrawal is under some emergency, the banks are likely to consider. However, the word emergency isn’t well defined and might differ from bank to bank. To conclude, it is completely upon the bank to decide whether to levy premature closure penalty to the depositor or to completely do away with it.
When is Breaking a Fixed Deposit Helpful?
There are two circumstances under which the depositor decides to break an FD. One is an emergency that needs an immediate financial aid. Second, when there is a better investment prospect awaiting. The first scenario doesn’t give any scope to ponder over the right time and way. FD is also a best retirement investments so it is not suggested to withdraw FD, However, if considering to withdraw your Fixed Deposit for a better investment avenue, it is advisable to do your calculations properly.
For instance, let us consider you have currently locked Rs. 1 lakh for four years at 8% interest per annum. You come across a higher interest paying FD of 9% so you decide to break the existing one and invest in the latter. The higher interest rate might sound lucrative, but it isn’t advisable to go for mere high-interest rates.
The Bottom Line
Now that you are aware of the things to consider while withdrawing premature fixed deposit, it will help you take a better decision and accordingly plan your finances.
By using fixed deposit calculator you can analyse your amount after or before premature FD withdraw.
This simplifies the process of availing your loan and also helps you save on time.
Like mentioned earlier, the penalty levied on an individual completely depends upon the bank to bank. However, on an average, banks charge anywhere between 0.5% to 1% as premature closure penalty. Having said that, there could be chances that the bank may completely do away with the penalty if the withdrawal is close to the maturity of the FD.
Also, if the withdrawal is under some emergency, the banks are likely to consider. However, the word emergency isn’t well defined and might differ from bank to bank. To conclude, it is completely upon the bank to decide whether to levy premature closure penalty to the depositor or to completely do away with it.
When is Breaking a Fixed Deposit Helpful?
There are two circumstances under which the depositor decides to break an FD. One is an emergency that needs an immediate financial aid. Second, when there is a better investment prospect awaiting. The first scenario doesn’t give any scope to ponder over the right time and way. FD is also a best retirement investments so it is not suggested to withdraw FD, However, if considering to withdraw your Fixed Deposit for a better investment avenue, it is advisable to do your calculations properly.
For instance, let us consider you have currently locked Rs. 1 lakh for four years at 8% interest per annum. You come across a higher interest paying FD of 9% so you decide to break the existing one and invest in the latter. The higher interest rate might sound lucrative, but it isn’t advisable to go for mere high-interest rates.
The Bottom Line
Now that you are aware of the things to consider while withdrawing premature fixed deposit, it will help you take a better decision and accordingly plan your finances.
By using fixed deposit calculator you can analyse your amount after or before premature FD withdraw.
This simplifies the process of availing your loan and also helps you save on time.
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