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Premature Withdrawal of a Fixed Deposit is a Big NO NO!

· Finance,fixed deposit

Fixed deposit investment is a coveted income source that allows the investor to earn a hefty profit from his principal payment over a definite period of time. However, fixed deposit investments are governed by certain policies formulated and imposed directly by the RBI and the lender themselves; thus, it is necessary to plan the investment in accordance with these terms and conditions.


One of the biggest things to avoid is premature withdrawal. Premature withdrawal of a Fixed Deposit account is a big NO NO! Though it is allowed to apply for premature withdrawal whenever the need prevails, the financial institution generally discourages investors to opt for it. NO! It doesn’t raise their profit margin, they discourage premature withdrawals to ensure the investor gets a better value from their investment.

Also, when you apply for a premature withdrawal, these things happen;

  • Your investment gets Penalized: Be it banks or NBFCs, premature withdrawal attracts several penalties: penalty of 1-2% on the initially offered interest rate.
  • The Promised Returns Decrease: When the offered interest rate gets penalized, your income decreases and you don’t get the promised return. As a thumb rule, banks and financial institutions calculate net received amount after withdrawal as (Deposited amount * interest rates for given term at the time of depositing) – 1%.

What can be done to avoid opting for premature withdrawal?

  • Loan against FD: Be it banks or NBFC, the Indian market is full of financial institutions offering loan against an FD under certain terms and conditions. You can apply for these schemes and get through your financial requirement without liquidating your investment.
  • Investment in Multiple FDs with Varied Maturity Date: Or, you can take the precaution in the beginning and invest in multiple FD accounts, each with a different maturity date. This will help you maintain a regular cash flow in your account and avoid premature withdrawals.

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