Fixed deposits are one of the most preferred investment/saving tools in India. They are widely accepted because of their safe and secure nature. They offer a cumulative option, instead of the regular or interest payment option, besides offering relatively low risk and fixed returns.
Bank FDs offer a wide range of tenures to choose from, ranging from 7 days to up to 10 years, but their main advantage is liquidity. This feature helps when in need of emergency funds. For instance, in case of any COVID-19 crisis, depositors can opt for easy premature withdrawal from their fixed deposits, but often this comes with a penalty.
There are 2 types of account depositors can choose from while opening a bank FD – i) with premature withdrawal facility; ii) without premature withdrawal facility. The second one comes with a compulsory lock-in period.
In case of a premature withdrawal FD, even though depositors can withdraw their amount and close the account before the term ends, with an added penalty, most major banks have their own set of terms and conditions. Such as SBI, HDFC Bank and ICICI Bank have their own rules and regulations when it comes to withdrawing money from their FD account before maturity.
Penalty for Premature Withdrawal of Fixed Deposit
Banks often charge a penalty on closing or prematurely withdrawing from fixed deposits before completion of the tenure. This ranges from 0.55 per cent to up to 1 per cent of the FD amount. For instance, to make a premature withdrawal from SBI bank FD, depositors are charged a penalty of 0.05 per cent across all tenures, for any amount below 5 lakh, and 1 per cent for deposits above Rs 5 lakh up to Rs 1 crore. If you have an FD for Rs 3 lakh with the bank, you will be charged Rs 1,500 as penalty from your deposit, whereas, if you have an FD of Rs 18 lakh with the bank, you will have to pay a penalty of Rs 18,000.
In case of a premature withdrawal from ICICI Bank FD, for deposit less than Rs 5 crore and tenure less than 1 year, the depositor is charged a penalty of Rs 0.50 per cent, whereas, for a tenure between 1 year and above, a penalty of 1 per cent is charged. Similarly, HDFC Bank charges a penalty of 1 per cent for premature withdrawals from FDs, including sweep-ins and partial withdrawals.
Interest payment on Premature Withdrawal
Note that, banks usually pay interest for the whole period the deposit remains with the bank but is 0.50 per cent or 1 per cent lower than that of the rate applicable at the time of opening the account or lower than the contracted rate, whichever is lower. For instance, with HDFC Bank, in case of premature closure of the FD account, the interest rate applicable will be either the base rate for the tenure for which the FD was initially opened or the base rate applicable for the tenure for which the deposit has been with the bank, whichever is lower.
Keep in mind that certain banks waive off the penalty on FDs for certain categories of customers, for a specific tenure and do not penalize for premature FD withdrawals. Hence, check with your bank about the rules before making a premature withdrawal. Additionally, with most banks, no penalty is charged for withdrawals that are made within 7 or 14 days of opening the account.