Now Reading: 5 checks before breaking your fixed deposit early
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5 checks before breaking your fixed deposit early
Breaking a fixed deposit before maturity can trigger a penalty from the bank, and you may not earn the interest rate originally offered. The bank calculates interest based on the rate applicable…
Breaking a fixed deposit before maturity can trigger a penalty from the bank, and you may not earn the interest rate originally offered. The bank calculates interest based on the rate applicable for the period the deposit was actually held, not the contracted rate.
Interest earned on an FD is taxable under income tax rules, so premature withdrawal alters the tax liability. Before closing the deposit, check whether your bank offers a loan or overdraft against the FD, which lets you access funds without breaking the deposit, though borrowing costs apply.
Experts advise calculating the total cost: penalties, lost interest, charges, and tax implications. Compare that with the amount you need. A partial withdrawal, if allowed, can meet an immediate need while the rest of the deposit continues earning. The decision should be a calculated one based on the bank's specific terms.
Indian Opinion Analysis
Banks set their own premature withdrawal penalties under RBI's master directions on deposits, and the fine print varies widely: some waive the penalty if the deposit is older than six months, while others charge up to 1% of the withdrawn amount. The real trade-off is often between a 0.5, 1% penalty and the higher rate a new FD would earn if you simply waited. A loan against FD, typically offered at 1, 2% above the FD rate, keeps the deposit intact and avoids the tax hit on accrued interest, which falls due only on closure. The next time you face an emergency, check whether your bank allows partial withdrawal before deciding to break the entire deposit.
Source: livemint.com
This brief was synthesised by AI from the source linked above.
