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What is the penalty for premature withdrawal of fixed deposit?

What is the penalty for premature withdrawal of fixed deposit?

Investing in fixed deposits for a specific tenor can help you gain from fixed and steady interest rates. However, unforeseen circumstances may warrant urgent financing, which is why you may want to liquidate your savings before the end of your investment tenor.

Can we withdraw money from fixed deposit before maturity?

The penalty on withdrawing your deposit prematurely from a non-banking financial company, depends on when you choose to withdraw from your deposit. As per the Reserve Bank of India, here are the guidelines on penalty for premature withdrawal of fixed deposit:

Withdrawal Time (after deposit) Is withdrawal possible? Principal amount received Interest amount received
Within 3 months FD cannot be liquidated before lock-in period of 3 months, except in the event of death - -
Within 3-6 months Yes Yes No
After 6 months Yes Yes Interest payable is 2% lower than the interest rate applicable to a public deposit for the period for which the public deposit has run

In case no rate has been specified for that period, the interest rate payable is 3% lower than the minimum interest rate at which public deposits are accepted by the non-banking financial company.

Disadvantages of breaking your FD prematurely

Often, breaking your FDs prematurely can adversely impact your investments.

Here’s a look at the disadvantages of breaking your deposit prematurely:

  • Loss of interest – The returns on your deposit are pre-determined, based on your tenor. However, when you withdraw prematurely, you may end up losing interest.
  • Penalty – In addition to loss of interest, your bank or financial institution also charges an additional penalty for withdrawing your deposit before maturity.
  • Financial uncertainty – By withdrawing your deposit prematurely, you may lose out a source of emergency fund during challenging times.

Thus, instead of withdrawing prematurely, it is always advisable to take a Loan against Fixed Deposit, to cater to immediate needs without having to liquidate your savings. This can help you get the desired cash flow without losing out on the interest.

When you invest in Bajaj Finance Fixed Deposit, there is a fixed lock-in period of 3 months. While there is no penalty on withdrawing money prematurely, you may incur losses in terms of earned interest.

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