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How Premature Withdrawal Of Fixed Deposits (FDs) Affects Your Interest Calculation?

  • Highlights
  • Interest will now be calculated on the new time frame

  • You may not get the original earnings on an early withdrawal

  • You will also have to pay a premature withdrawal penalty

  • Avoid premature withdrawal by laddering FDs using multi-deposit facility

Keeping your fixed deposit secure until maturity helps you grow your savings, and gain from fixed and steady interest rates. However, unforeseen circumstances may push you to break your fixed deposit prematurely. Read along to know how your interest calculation is affected by premature withdrawal of your FD.

How Premature Withdrawal of FD Affects Interest Rate?

Let’s assume that you’ve invested a sum of Rs. 10 lakhs over a tenor of 48 months, with an interest rate of 8.40%. This interest rate is set for 48 months. Say, you want to withdraw the FD after 12 months. The interest will be calculated at the former rate, which was the rate of interest on a one-year FD when you first opened the fixed deposit.

As a result, you will lose out on a significant sum of money that you would have otherwise earned. So, if you complete the tenor, you will receive Rs.13.6 lakhs. But, if you withdraw in a year’s time, you will only get Rs. 10.7 lakhs.

So, before you choose premature withdrawal, do the calculation and be prepared to receive lower returns. If not, try to fund emergency situations using other modes of finance like personal loans, cash reserves, or the s ale of an asset. This way you can keep your FD intact until the lapse of the tenor.

Additional Read : 4 Ways To Make Your Retirement Fund Pay You a Monthly Salary

Penalty for Premature Withdrawal of Fixed Deposit:

Depending on the lender that you have chosen, you may have to pay a significant sum of money as a penalty. This could range from 0.55% to even up to 1% of the FD amount. So, before you prematurely close your FD, ensure that you are prepared to pay this penalty.

Choose a lender that makes premature withdrawal easy and has flexible terms. Consider opening a Fixed Deposit with Bajaj Finance, which charges a low premature withdrawal fee while offering an attractive rate of interest.

Additional Read : How to get a monthly income with an investment of Rs.50 lakh?

Losing interest if you withdraw and re-invest:

In some cases, you may withdraw your FD to invest it another FD that is offering higher interest rate. It could be a wise decision, if you profit after paying the penalty charges. If not, keeping your FD intact makes more sense.

Bajaj Finance Fixed Deposit Calculator

How You Can Avoid Premature Withdrawal While Ensuring Liquidity

You can look at various methods as below to avoid early liquidation of fixed deposits–

  • 1. Laddering FDs using multi-deposit facility - You can use the multi-deposit facility with Bajaj Finance FD to split your investment amount into multiple FDs, each having different maturity timeline and interest payout frequency. This will ensure you have a steady stream of FDs maturing in succession. Hence, whenever you have a need for cash, you can utilize this money without going for a premature withdrawal.

  • 2. Non-cumulative FDs – Try to keep some FDs in the non-cumulative mode in order to earn a fixed payout each month. You can use this surplus money to either pay recurring expenses or to tackle emergencies. Sometimes even a fixed income each month helps tremendously in creating a sum in use.

    You can set your interest payout frequency as monthly, quarterly, half-yearly, or annually with Bajaj Finance FD.

  • 3. Short-tenor FDs – If you are unsure of the time duration after which you might need your money, go for short FDs starting 12 months with Bajaj Finance FD. Short tenor FDs will also help you safeguard your investment against inflation.

  • 4. Loan against FD – Instead of breaking your FD, you can consider taking a loan against fixed deposits. This is a wise move that prevents you from depleting your finances, while also ensuring enough liquidity to help you meet your emergency needs. This is a low-cost loan as you only have to pay a marginal rate of interest, over and above the interest you are earning.

You can use online tools such as Experia- your online fixed deposit account to set interest payment frequency, apply for a loan against FD, and manage multiple FDs online.

As you see, with thoughtful planning of your FD investments, you can avoid liquidating your fixed deposits before the maturity timeline. However, if you have to liquidate your fixed deposits, ensure that you’re aware of the various withdrawal terms set by your lender. These terms may change periodically, so make sure you’re aware of these beforehand.

Bajaj Finance is now offering high rate of interest up to 8.70%*

*For senior citizens, on a cumulative scheme tenor of 36-60 months

DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.

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