Understanding More On Withdrawal Of Fixed Deposits Before Maturity
Fixed deposit is always a life saver during financial crisis, when we do not have enough money in hand. It not only fetches us a good interest rate but also is a saving, but during a crunch when money is less we tend to make it up by utilizing the fixed deposit. Is withdrawal of fixed deposits before it reaches maturity a good decision or should you surrender yourself to any other sources?
What is partial withdrawal of fixed deposit?
Why do people opt for partial withdrawal of fixed deposit?
While sometimes they withdraw because of an emergency, at other times they do it to avail a higher interest rate than the current rate. During these circumstances, some banks might impose a penalty charge of 0-1% on the interest rate for the period the fixed deposit was in the bank. This method is adopted to discourage investors to withdraw their fixed deposit before attaining maturity. The Reserve Bank of India has left this option for the banks to decide.
Consequences of partial withdrawal of fixed deposit
Withdrawal of fixed deposit from the bank comes with a lot of drawbacks, read on to see the consequences involved:
- Banks impose a penalty charge for those investors who withdraw the fixed deposit either fully or partially before maturity. Some banks waive off this penalty charge if it is an unavoidable emergency.
- To waive off the penalty charge imposed by banks, you may have to reinvest the money at a prescribed time to the bank. Under this condition, the interest rate will be lower.
- The Reserve Bank Of India (RBI) has given the banks the freedom to decide the interest rate while making a premature withdrawal of fixed deposit.
- In case the deposit is withdrawn early before completing the tenure, the interest implied will be at the rate as decided during the time of deposit for the time period the amount was in the bank.
During certain conditions, there are instructions from the bank to pay no interest at all while making a premature withdrawal of fixed deposit, before completing the minimum period pronounced.
Now that you are aware about the consequences you will have to incur while making a premature withdrawal from fixed deposit in the bank before completing maturity, it is always a good idea not to go for it and instead take a loan against the fixed deposit which is more efficient.
I have withdrawn my fix deposits several times due to emergency and I am not sure if any penalty was levied on me. If at all there were any, it was not communicated to me. I think there should be a cause when we fill out the forms for Fix Deposits to avoid keeping the investors in blind. Also, I feel that taking a loan against fix deposits is a trend yet to be caught up in India. All the problems mentioned above can be solved at the jurisdiction of the bank.
Once I withdrew my FD before the maturity. I got the interest on my principal amount for the period money was in the FD account. Though 1% penalty was levied, I did not feel the pain. At least I got the money to meet my needs at that point of time. However, different banks have fixed different penalty rates. So, one should get clear picture of the premature withdrawal penalty before booking an FD. Financial crisis can knock your door anytime without alarming you.