Have you ever found yourself in a financial crunch, wondering if breaking that Fixed Deposit (FD) early is
the right thing to do? Fixed Deposits are designed to provide guaranteed returns in the form of interest
on the maturity date. Therefore, it is one the best monthly saving schemes, providing you hold of your
FD until maturity.
Nevertheless, according to a report by the Reserve Bank of India, about 20% of Fixed Deposits in India
were prematurely withdrawn during 2021-2022. This means that for every 100 FDs, around 20 of them
were withdrawn before maturity. This is because, under certain circumstances, it becomes essential to
cater to the in-hand financial needs. Thus, during such times, the option of premature withdrawal of a
Fixed Deposit serves the purpose.
If you do not know how to exit your FD early, do not worry! This blog will walk you through prematurely
withdrawing your Fixed Deposit offline and online. It will also discuss when to consider such a
withdrawal and its implications on your finances. So, read on till the end.
What is the Premature Withdrawal of the FD?
Premature withdrawal of Fixed Deposit refers to withdrawing your Fixed Deposit investment before its
predetermined maturity date. You must remember that penalties and charges are often associated with
the early withdrawal of funds. A penalty may also be levied on the interest that you will get.
The calculation for the penalty varies from one bank to another. Usually, banks levy a penalty ranging
from 0.50% to 1%. However, some banks offer premature withdrawal with zero penalty charges, too.
How to Prematurely Withdraw the FD Offline?
You must physically visit the bank holding your FD account to withdraw your FD offline. Here is the step-
by-step process for doing the same:
● Visit your nearest bank branch.
● Carry valid identification documents, such as an Aadhar card, PAN card, or passport.
● Fill out the Premature Withdrawal Application Form with accurate details like your name, FD number,
bank details, etc.
● After submitting the form, wait for your request to be processed.
● You can then collect your funds via check or get them credited to your linked bank account.
How to Prematurely Withdraw the FD Online?
To withdraw your FD online, you need to access the bank’s online portal and follow the steps mentioned
● Log into your bank’s online banking portal or website.
● Enter your account credentials.
● Locate the option for premature withdrawal in the FD section.
● Fill in the necessary details, including bank account number and FD details.
● Once the request is processed and confirmed, you will receive your funds in the linked bank account.
When Should You Consider a Premature Withdrawal of FD?
Prematurely withdrawing an FD should be a well-considered decision, as it can have financial
implications. Some of the scenarios where you may want to consider it are:
Unexpected expenses like medical bills, unemployment, etc., require immediate attention.
Sometimes, money is not readily available. So, to fulfil the necessary needs, breaking the FD is
the only option.
It includes mortgage or student loans that require immediate funding, leading to premature
Fixed Deposit withdrawal. Loan against Fixed Deposit or partial withdrawal of FD can also be
helpful in such scenarios.
You can also consider withdrawing your funds if a better investment opportunity arises.
Premature withdrawal may help you relocate or invest your funds in better opportunities.
●Education or Major Life Events
Sometimes, you may need funds for your child’s education, a wedding, or any other significant
life event. Breaking your FD may be a suitable option in such scenarios, as these events generally
come with fixed timelines.
●Change in Financial Goals
If your financial goals or circumstances change, and you require your FD funds for a different
purpose, it might be worth breaking the FD to reallocate your funds accordingly.
What are the Implications of Premature Withdrawal of FD?
Early withdrawal of an FD can provide financial relief in times of need, but it is important to understand
that it comes with multiple implications. The following are the major implications to consider:
●Interest Rate Reduction
Banks usually offer a lower interest rate for early withdrawals than the rate agreed upon at the
time of deposit. This means you will earn less interest on your principal, affecting your overall
As stated earlier, many banks impose penalty charges for early withdrawal, which can
significantly reduce your overall earnings. These charges generally vary among banks. It is
important to note that the penalty may also depend on the amount of funds deposited.
The interest earned on Fixed Deposits is subject to taxation in India. When you prematurely
withdraw your FD, the interest earned might still be liable for taxation in the same financial year.
This can increase your tax liability, reducing the returns of your investment.
●Loss of Compound Interest
Compound interest is the interest you earn on interest. One of the main advantages of long-term
investments like Fixed Deposits is compound interest. When you withdraw your funds
prematurely, you lose the benefits of compound interest.
●Impact on Financial Goals
If you have planned cash flow with a series of FDs, premature withdrawal of the scheme will
disrupt your cash flow and may affect your budget. It can also affect your financial planning and
leave you with insufficient funds. So, consider assessing your long-term financial goals and the
effects of withdrawing your FD prematurely.
Various banks allow you to withdraw your FD prematurely; however, before breaking your FD, it is
imperative to assess your situation thoroughly. But when circumstances demand a premature
withdrawal of a Fixed Deposit, make the choice that aligns best with your current circumstances and
future goals, keeping your financial well-being at the forefront. Moreover, by following the steps outlined
above, you can carefully consider the timing and implications of your decision and handle the process