Fixed deposits are the most popular investment options in the country. It is defined as the risk-free investment and also provides you with guaranteed returns. It is a method in which the investor deposits a certain investment sum of amount in an account for a fixed tenure in order to gains the interest earns from it.
In the FD accounts, the amount that is deposited will be locked without any scope of the money that is withdrawn when it’s needed. Hence, the investor will need the required amount of money when it’s essential if there is any emergency need, they are eligible to opt for a premature withdrawal or break their fixed deposit accounts.
Premature withdrawal in fixed deposit accounts
If you withdraw the fixed deposit money before the maturity, then it will be called as the premature withdrawal. It will be done by the investor if he or she needs the money in an urgent basis. Investors may also withdraw the money if there is an investment option that is better than the fixed deposits. It is always an advisable option that if there is an alternative option other than the fixed deposits for earning interests.
What happens if a fixed deposit is broken before maturity?
Fixed deposits are flexible options when it comes to break the account and use that money in something else. Therefore, fixed deposits can also be broken prematurely with the net banking platforms if the investor is not ready to visit the nearest branch.
In case, if you want to do that in a branch, then the fixed deposit receipt needs to be submitted to the bank which is duly signed by account holders. If you have misplaced the receipt, then you have to fill a deposit liquidation form that needs to be filled by the account holder. And when it’s filled and submitted, the bank will process the request and the respective money will be transferred to your personal savings account.
Penalty charges for premature withdrawal of FDs
Almost all the banks will charge for the premature withdrawals of the fixed deposits as it will affect their business since they would have relied on your money. And the interest rate for these charges will range from 0.5% to 1.00%.
But still, some of the financial institutions will not charge a penalty if your reason is really an emergency and if you’re planning to invest the same amount of the money in another investment option offered by the same bank.
And apart from all these process and charges, if the investor approaches the bank to close the fixed deposit account prematurely, then the rate of interest of the FD will be reduced by the bank while comparing it to the initial interest rates provided by the bank.
For instance, if the investor has deposited a certain sum of money on the fixed deposit account that will earn an interest amount of 8 per cent in a time span of three years. In the first year the interest earned through that account will be 6 per cent per annum and not 8 per cent per annum.
Therefore, if it is very essential for the investor to withdraw the fixed deposit money they should go ahead and do it. But if it is not an immediate emergency then the premature withdrawal will result in a huge loss for the investor.
Some banks also have certain restrictions like the created Fixed Deposits cannot be withdrawn before the maturity of six months period from the day since it was opened. And in those cases, the interest amount you received through that particular fixed deposit will not be paid back to you.
Penalty details of charges by banks for premature withdrawal of FDs
According to the norms of the Reserve bank of India (RBI), the NBFCs or the Banks are allowed to charge their penalty fee only in the case of premature withdrawals.
Yet, mostly the financial institutions charge a percentage of 0.5 to 1 % interest rates and it will be communicated to the investor before opening the FD accounts. If not, it is the investors right to ask for the details in your respective banks or NBFCs.
However, some of the major financial institutions like the HDFC bank charge a penalty of 1% for premature withdrawals. Whereas some of the other private banks like ICCI will charge up to 0.5 per cent to 1 per cent. Few banks like State bank of India will charge from 0% to 0.50% as the interest rates for a penalty over fixed deposits.
Why people break fixed deposit accounts?
People who invest in fixed deposits often think that there is no need to use that money for them. They don’t foresee any emergency need required for their lives. And one of the main reasons is that there is an urgent need for money due to the various problems that occur in their lives. During that time, premature withdrawal will be useful for their immediate financial requirements.
Another important reason for these breaks in fixed deposit accounts since the current rates of the fixed deposit is that the current rate offered in the fixed deposit is more than what they are actually given. Hence, in those cases, they will break the fixed deposits and invest the money again in a similar fixed deposit where the interest rates are higher. It is also important that the investors seek some assistance from the representative of the bank and calculate the returns on the new fixed deposits before breaking their current FD.
Footnote:
Investors should be aware that if their fixed deposit is near the maturity time, breaking it during that time is not advisable. A huge sum of money will be lost and the charges will be also being reduced in the interest rates. It is also advisable that the let the fixed deposit money to mature and get the assured returns without any loss occurred. And later invest it in another FD or if possible in any other option that is more viable to your financial situation.
