Banking

Pre-mature FD Penalty Calculator

2,00,000
7.5%
6.5%
1%
12 Months
Premature Penalty Cost4,198
Interest Payout11,229
Effective Rate Paid5.5%

Penalty Analysis:

  • Accrued interest at booked rate (7.5%): ₹15,427.
  • Interest paid under penalty rates (5.5%): ₹11,229.
  • Net loss due to premature withdrawal: ₹4,198.

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Premature FD Closure Penalty Formula

Net Loss = Compounded Interest (Original Rate) - Compounded Interest (Lower Completed Rate - Penalty)

Calculates the interest penalty and lower rate adjustment when a fixed deposit is broken before the scheduled maturity.

Worked Example: Breaking ₹2 Lakhs FD at 12 months (Original 36M rate: 7.5%, Completed 12M rate: 6.5%, Penalty: 1%)

Expected interest: ₹15,506. Actual interest received (effective 5.5% rate): **₹11,151**. Net penalty cost: **₹4,355**.

Premature FD Closure: The heavy interest cost of breaking deposits

Rahul broke a ₹2 Lakhs FD after 12 months due to a sudden cash requirement. The FD was originally booked for 36 months at a 7.5% interest rate. The bank charged a 1% premature withdrawal penalty.

The bank paid the interest rate for the completed tenure (6.5%) minus the 1% penalty, reducing his payout rate to 5.5%. Rahul received ₹11,151 in interest instead of the ₹15,506 accrued, losing ₹4,355 to the penalty.

Breaking an FD prematurely results in a lower interest rate matching the completed tenure, plus an additional 0.5-1% penalty deduction.

Before breaking an FD, compare the penalty cost with taking a cheap overdraft loan against the FD (typically charged at FD rate + 1%).

Frequently Asked Questions

How do banks charge premature FD penalties?

Banks deduct 0.5% to 1.0% from the interest rate applicable for the actual period the deposit remained with the bank, not the original booked rate.

Can I avoid premature FD closure fees?

Some banks waive penalties for senior citizens or if the funds are reinvested in a longer-tenure deposit within the same bank.

Should I break an FD or take a loan against it?

If the deposit is near maturity, taking a loan against FD (charged at FD rate + 1%) is often cheaper than paying a premature closure penalty.

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