Premature Withdrawal of FD

Premature withdrawal of FD refers to accessing fixed deposit funds before maturity, often incurring penalties or reduced interest rates.
Premature Withdrawal of FD
3 min

Fixed deposit (FD) offers a secure and predictable way to grow your savings. The promise of guaranteed returns at a fixed interest rate makes them a popular choice for risk-averse investors. However, life can be unpredictable, and circumstances might arise that require you to access your FD funds before the maturity date. This is where the option of premature withdrawal comes in, but it is a decision that needs careful consideration.

What is premature withdrawal fixed deposit?

Premature withdrawal of fixed deposit refers to the early closure of an FD account before the agreed-upon maturity date. This option allows investors to access their funds in urgent situations or to reinvest at more favourable rates. However, it typically incurs penalties and may impact the overall returns.

How to break a fixed deposit account before maturity

  • Visit the nearest branch, contact customer service, or access premature withdrawal options through internet banking
  • Complete necessary documentation
  • Pay the applicable penalty charges, which are typically deducted from the principal amount

Premature withdrawal of FD - Penalty charges

Most financial institutions levy a 0.5%-3% penalty charge for the premature withdrawal of FDs. This penalty charge is calculated on the interest rate applicable to the fixed deposit. In other words, this penalty charge reduces the fixed interest rate initially offered to the investor while booking an FD.

Let us understand this with an example

Let's say you invest Rs. 1,00,000 in a 5-year FD with an interest rate of 8% p.a. If you withdraw the money after 2 years, the financial institution might impose a penalty by reducing the applicable interest rate to 6% p.a. In this case, the interest earned for the 2 years would be calculated at 6% instead of 8%, resulting in a lower overall return.

Some financial institutions might waive penalties for premature withdrawals due to:

  • Emergencies
  • Reinvestment within the same institution

Note: Penalty rates for premature FD withdrawals differ significantly between financial institutions.

Disadvantages of premature withdrawal

  • Reduction in overall returns due to penalty charges
  • Loss of accumulated interest income
  • Disruption to your financial planning goals
  • Potential impact on your credit score if funds are withdrawn to cover debt payments

How to avoid the penalty on premature withdrawal of FD

  • Opt for a shorter tenure FD
  • Utilise the sweep-in facility for liquidity needs
  • Consider partial withdrawal instead of closing the entire FD
  • Consider a loan against your FD to meet immediate financial requirements. Financial institutions like Bajaj Finance offer loan against fixed deposit

Does every financial institution charge the same penalty for premature withdrawal of FD?

No, penalty charges for premature withdrawal of fixed deposit vary among financial institutions. Bajaj Finance penalty structure may differ from that of other financial institution, impacting the overall cost of early withdrawal.


Premature withdrawal of Fixed Deposits can provide liquidity in emergencies but comes with penalty charges. Understanding the process, charges, and alternatives are crucial for making informed financial decisions. Evaluate your options carefully to minimise the impact on your financial goals and returns.

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator
SIP Calculator Fixed Deposit calculator SDP calculator Gratuity Calculator EPF Calculator
Lumpsum Calculator Step Up SIP Calculator Sukanya Samriddhi Yojana Calculator PPF Calculator RD Calculator

Frequently asked questions

Can I withdraw my FD before maturity?

Yes, but it will attract penalty charges.

What is the penalty for premature FD withdrawal?

Penalty charges vary based on the financial institution.

Can I partially withdraw from my FD?

Yes, partial withdrawal is an option. However, there might be restrictions on the minimum withdrawal amount and the remaining balance you must maintain. Check with your financial intuition for their specific policies.

Can I avoid penalty charges for premature FD closure?

While complete avoidance might be difficult, you can minimise penalties by choosing FDs with flexible withdrawal rules or opting for institutions with lower penalty fees. Some financial institution might waive penalties in specific cases like medical emergencies.

How long does it take to process a premature FD withdrawal request?

Processing time varies among financial institutions, typically ranging from a few days to a week.

Can I reinvest the withdrawn amount from my premature FD?

Yes, you can reinvest the amount in other investment instruments or FD.

Show More Show Less


As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.