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Premature Withdrawal of Fixed Deposit & How to Avoid Penalty

3 Mins 04 May 2023 0 COMMENT

Fixed deposits are an attractive investment for a number of financial goals. You may have your emergency fund in an FD, or you may have a short-term goal for what you are saving towards. If you need money for an emergency, you may want to break your FD. The premature FD withdrawal option offers quick cash to depositors when they need it the most.

What Is A Premature Fixed Deposit Withdrawal?

Premature FD withdrawal is the process of breaking a fixed deposit before the date of maturity by the depositor. Some fixed bank and post office deposits are eligible for premature withdrawals. However, these are often subject to certain conditions and penalty charges.

Why Go For Premature Withdrawal Of Your Fixed Deposit?

Some of the top reasons why you may want to close your FD early are:

1.  Urgent need for the cash flow

Depositors may require the sudden need for cash by withdrawing their fixed deposit amount. A financial or health emergency may put you in urgent need of cash.

2. Long-term fixed deposits

You may need to go for short-term deposits compared to the existing long-term fixed deposits because your goals have changed or the interest rates offered are better.

3.  Investing in other popular entities than fixed deposits

You may also feel interested in pulling out money from fixed deposits and investing in vehicles like shares, bonds, or mutual funds.

Disadvantages of Premature FD Withdrawal

While FD premature withdrawals cannot be avoided at certain times, there are some downsides to it:

1. Lengthy process

Premature FD withdrawal can be a lengthy process involving several steps and formalities. The formalities for premature FD withdrawal include filling out required forms, meeting bank officials, and submitting required documents.

2. Disrupted financial growth

FDs offer guaranteed returns to investors. However, a premature withdrawal disturbs the steady cash flow and the depositor’s overall financial growth.

3. Loss of interest amount

Any withdrawal of the fixed deposit before the maturity date can lead to a reduction in the interest amount. This loss of interest amount depends on the rules and regulations of the respective banks, but it is usually pro-rated until the date of maturity.

4. Other penalties

Many banks charge a specific penalty from the depositors when selecting a premature fixed deposit withdrawal. It may change over time according to the rules and regulations of the respective bank.

What is FD’s premature withdrawal penalty calculator?

After going through the detailed issues with FD withdrawal before the maturity date, you may be interested to know about the FD premature withdrawal penalty calculator. It helps calculate the fixed deposit amount for withdrawing the money before the scheduled date. It works differently for different banks.

This calculator helps investors to get a clear idea of the amount with great accuracy. Further, it saves investors time in making necessary calculations and is readily available online. Take advantage of its quick assistance in sharing details according to the bank’s policy for premature withdrawals.

Penalty Charges for Premature Withdrawal of FD

As mentioned earlier, premature withdrawal of FD is allowed, but it comes with a cost. A bank may charge you anywhere between 0.5% and 1.5% of the interest as a penalty. For understanding, let us see the penalty associated with ICICI Bank in case of premature withdrawal of FD.


Premature Withdrawal Penalty Rates 

Below Rs.5 crore 

Rs.5 crore & above 

Less than 1 year 



1 year to less than 5 years 



5 years and above 

1.00% to 1.5%


How to Avoid Premature Withdrawl?

1. Avail Loan Against the FD

If you are in urgent need of money, you can choose to avail of a loan against your FD instead of liquidating it. Most often, the loan interest rate will be slightly higher than the returns provided on loan. However, it will be much cheaper than a personal loan.

2. Use A Sweep-In Account

If you need money urgently, try opening a sweep-in FD instead of a regular one. Sweep-in FDs give returns like FDs but operate like savings accounts. There is usually no penalty charged on early closure.

3. Invest in Multiple FDs

Another approach is to keep your money in multiple FDs with differing maturity dates instead of one large FD. This can help you stagger your investments and make your liquidity smoother.


While premature FD withdrawal is a handy option during emergencies, there are often penalties and charges associated with early withdrawal. Carefully evaluate your financial plan and create an investment portfolio that gives you sufficient liquidity.

ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.