Editorial

What Happens if you Want to Break FD Before Maturity?

Ideally, a premature withdrawal should be your last resort, and there are a lot of reasons for that. But, always make sure you have a separate emergency fund for emergencies and short-term funds for sudden cash crunches for withdrawal instantly. If you have no other way now, don’t worry about that either – you can always make a premature withdrawal, and most of the banks will offer you that. But, there are a lot of things you would want to know about it, and we speak about them in this article.

What is a Premature Withdrawal in an FD?

Fixed deposit accounts are one of the safest investing alternatives in the country because they are low-risk and offer guaranteed earnings. It is an investment in which a customer deposits a set amount of money in an account for a set period of time and receives interest on it.

The sum deposited in a fixed deposit account is locked and cannot be withdrawn when needed. If the investor requires money right away, he or she can decide on a premature withdrawal or break of the fixed deposit.

Premature withdrawal occurs when money is taken out of a fixed deposit account before it matures. If the investor requires money quickly, this is done. If there is a better investment choice than the Fixed Deposit, an investor can remove the money before the fixed deposit matures.

For instance, you invested in an FD from Bajaj Finance for a period of 5 years. The Bajaj Finance interest rates on fixed deposits are 6%. Now, if you break it up – you need to be sure that you will lose some part of the interest that you would earn in a matter of five years.

But, while you have the option to withdraw your fixed deposit, you would want to know about the penalties charged on it.

What is the Penalty for Premature Withdrawal?

A penalty is a fee charged by banks or companies when a depositor withdraws money from their bank before the maturity date. This is done to encourage saving habits and discourage frequent withdrawals.

Now, all you have to know is how to make a premature withdrawal of your fixed deposit.

How Can You Close Your FD Before it Matures?

The investor might choose complete or partial FD foreclosure (i.e., FD foreclosure or partial withdrawal). On FD foreclosure and withdrawal, there is a minimal penalty. However, the funds are quickly transferred to the depositor’s account. Investors can withdraw a portion of the full Fixed Deposit value in the case of partial withdrawal. The amount of the withdrawal will be credited to the investors’ savings bank account, while the money will remain invested and accrue interest.

For closing the Fixed Deposit before the maturity date, both online and offline options are available.

a) How to do it offline?

To close an FD before the maturity date, an investor should follow the processes outlined below:

  1. Gather all documentation, including identification, a deposit certificate, and photos.
  2. Then go to the bank branch closest to you or the bank branch where your FD account was opened.
  3. Fill out the FD account closure form and submit it to the bank agent.
  4. With the FD foreclosure process, the bank agent will assist you.
  5. Funds will be remitted to your savings bank account if the FD is successfully closed.

b) How to do it online?

To properly close an FD account, each bank has its unique FD foreclosure method. The investor must be registered with the bank’s internet banking option in order to close a fixed deposit online. The actions used at the top four banks for fixed deposit foreclosure are listed below.

What are the Drawbacks of a Premature Withdrawal?

Here are some of the major cons while you prematurely withdraw your fixed deposit:

  1. The downsides of Fixed Deposit foreclosure are as follows. As a result, closing the Fixed Deposit account prematurely is not recommended unless there is an immediate need for funds.
  • When an investor withdraws money from a fixed deposit before it matures, the bank levies a penalty. The cost varies by bank, but it is typically 0.5% to 1% of the total deposit amount. This simply means that your fixed deposit will earn interest at a rate of 0.5% to 1% lower than it would otherwise. In other words, liquidity is available but at a price.
  • When you make an early withdrawal – you will not receive the amount promised when you booked the FD. Fixed Deposits are intended to provide the depositor with guaranteed interest payments on the maturity date. If you’ve scheduled your cash flow with a series of FDs, the scheme’s early termination will disrupt your cash flow and may have an impact on your budget.
  • A premature withdrawal of the deposit, like everything else, is a time-consuming process rather than a straightforward transaction. To complete the process, one must go through various steps. Filling out paperwork, meeting with bank personnel, submitting documents, and other procedures are all part of the process.

Conclusion

When you have to make a premature withdrawal of your FD, you have to, and there is no other way to do it – that is a given. But make sure you know everything about the penalty and how much loss you would undergo because of it. Also, you could also consider the option of taking a loan against your FD.

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