Key Takeaway
Premature FD withdrawal typically carries a 0.5–1% penalty on the applicable rate. A 7.5% FD broken early might earn only 6–6.5%. The penalty significantly impacts returns on short-tenure deposits.
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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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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