What are the consequences of FD premature withdrawals?

Are you tired of working tirelessly to earn money? It is time to sit back, relax, and let your money earn more money by investing. Actively investing is an effective way to keep your money working and potentially build wealth. You can use this wealth to fulfil your goals and desires or to get through tough times. Fixed Deposits are one of the most invested schemes in India owing to their simplicity.

The only thing you need to do is invest a lumpsum amount with a bank for the chosen tenure. You can earn competitive FD interest rates on the deposit throughout your tenure, which indicates decent wealth creation systematically. Premature withdrawals are a common term for FD investments. Let us understand the concept better.

What is an FD premature withdrawal?

As mentioned, you can invest in FD for the desired tenure. Suppose you invest in an FD for five years. During the investment, you planned to stay invested for the entire tenure. However, during the investment, a financial requirement emerges, and you need the invested money to meet the same. In that case, you can request the bank for FD premature withdrawals. This means you withdraw the FD investment before its maturity date.

The procedure to request for an FD premature withdrawal is simple. Visit the nearest bank branch or go online to request a premature withdrawal. The bank processes your request immediately and credits the FD principal and interest amount to your Bank Account within the shortest time.

What happens when you opt for an FD premature withdrawal?

• Penalty applicable

While the bank extends FD premature withdrawal, it comes at a cost. You need to pay a penalty for opting for a premature withdrawal. The penalty is a fixed amount decided by the bank and mentioned on the FD receipt. The bank completes the premature withdrawal procedure once you have paid this penalty amount upfront.

• Impact on interest rates

Premature withdrawals have a major impact on FD interest earnings. Typically, when you opt for a premature withdrawal, you can keep the interest you have already earned but may not be able to obtain any future interest earnings. For instance, say you have invested in FD for five years. Two years are done, and three years are remaining. But you decide to opt for a premature withdrawal.

The bank will only provide you with the interest you earned in two years and nothing more. This translates to a significant financial loss for you. Generally, you should not opt for a premature withdrawal. Instead, go for a Loan against FD or an overdraft facility against FD. This lets you meet your requirement without breaking your investments.