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FD Premature Withdrawal Penalty Calculator: Interest, Penalty & Closure Charges

RBL Bank Feb 18, 2025

Fixed earnings and relatively low risk are two key factors that contribute to Fixed Deposit’s (FD) prominence in many people’s investment portfolios. Ease of liquidity is another perk of having an FD. Early redemption of regularly redeemable Fixed Deposits is usually permitted by banks, though often a fee known as an early withdrawal penalty is charged. Having easy access to money when in need of emergency funds makes FD more popular.

In this post, we will answer important questions related to the premature withdrawal of Fixed Deposits.

To begin with, there are two things you should know before choosing to redeem your FD assets prematurely.

  • How does the bank compute interest on the FD to determine the amount you receive?
  • How will the amount you receive change if a penalty is levied for early encashment?

What is a Fixed Deposit Calculator?

A Fixed Deposit Calculator is a valuable tool that helps you calculate the interest earned on a fixed deposit investment. By inputting the principal amount, interest rate, and tenure of the fixed deposit, the calculator provides an accurate calculation of the interest you will earn. This tool is typically available on your bank’s website. Using a Fixed Deposit Calculator can help you plan your investments better by giving you a clear picture of the returns you can expect from the fixed deposit.

How to Use a Fixed Deposit Calculator

Using a Fixed Deposit Calculator is straightforward. The calculation will be done based on the following parameters:

  • Principal amount: The amount you want to invest.
  • Interest rate: The interest rate offered by the bank.
  • Tenure: The duration for which you want to invest.

Once you input these details, the calculator will provide you with the interest earned on the fixed deposit, as well as the maturity amount. This helps you understand the potential growth of your investment over your chosen tenure.

Types of Fixed Deposits offered by banks

Banks offer various types of fixed deposits to cater to different investment needs. These include:

  • Cumulative Fixed Deposits: The interest earned is compounded and added to the principal amount, which is paid out at maturity.
  • Non-Cumulative Fixed Deposits: The interest earned is paid out at regular intervals, such as quarterly or monthly, providing a steady income stream.
  • Short-term Fixed Deposits: These have a shorter tenure, usually ranging from 7 days to 1 year, and are ideal for those looking for quick returns.
  • Long-term Fixed Deposits: These have a longer tenure, usually ranging from 1 year to 10 years, and are suitable for long-term financial goals.

Understanding these types can help you choose the fixed deposit that best aligns with your financial objectives.

Withdrawal Process

We can withdraw your Fixed Deposit either online or offline. Follow the below steps for premature online closure of Fixed Deposit:

Online FD Withdrawal

  • Visit your respective bank’s website.
  • Login into your net banking with proper credentials.
  • Select the ‘Fixed Deposit’ option under the account tab.
  • Click on the online premature withdrawal option.
  • Your premature withdrawal details will appear on the screen.
  • Select the desired account for transfer of funds.
  • Lastly, click on ‘Submit’ to complete the withdrawal process.

Offline FD Withdrawal

  • You need to visit the bank branch where you had opened your FD account.
  • Submit the duly filled withdrawal form, a deposit certificate, ID proof, and photographs.
  • You will receive the funds in your savings bank account post-document verification.

How is Interest Calculated on Premature Withdrawal of Fixed Deposit?

Upon early withdrawal from a Fixed Deposit, an interest penalty will be applied, resulting in a lower interest rate than the booked rate (the interest rate when the FD account was created) or the card rate for the period the Fixed Deposit was still with the bank.

Case 1: If The FD Booked Rate Is Higher Than The Card Rate

Let’s say you have opened an FD account in a bank for INR 1 Lakh for a tenure of one year. The interest rate on a one-year FD was 7% at the time of investment. Then, after six months, you terminate the FD to address a pressing financial need. Back then, a six-month FD had a 6.25% interest rate. Because the six-month rate (card rate) was lower than the one-year rate (booked rate) at the time the FD was formed, the interest rate that will be paid to you will be the rate that was applicable for a six-month FD following the time the FD was opened.

So, on the sum of INR 1 lakh, the bank will compute interest at a rate of 6.25% (instead of 7%; a reduction of 0.75%) and will pay you accordingly. This reduction is often referred to as the penalty interest rate.

Principal Amount 1 lakh
Interest at the time of FD Booking for a year 7% per annum
Maturity amount after one year INR 1,07,186
Interest Rate on 6-month FD at time of Booking 6.25%
Amount Due at Premature Withdrawal INR 1,03,340

Case 2: If FD is Booked at a Rate Lower Than the Card Rate

In the event of an early withdrawal, the reimbursement amount will be determined using the booked interest rate.

Assume you opened an FD account with a one-year term and a 6.25% annual interest rate. After 90 days, you choose to withdraw early. The prevailing interest rate for an FD with a duration of 90 days was 6.50%, according to the card rate provided when the FD account was opened. In this scenario, the bank will determine the 6.25% interest that must be paid on the early withdrawal of the FD.

In both cases, the bank will assess a penalty, if necessary, after the effective interest rate is determined in the event of an early FD withdrawal, which may include an early withdrawal fee.

Penalty on premature withdrawal of FD

Banks often charge a penalty on closing or prematurely withdrawing Fixed Deposits before the booked tenure is completed. The penalty interest rate can go up to 1% depending on the bank, the original tenure of the FD, and the term for which the Fixed Deposit remained with the bank. The premature withdrawal penalty is subtracted from the Fixed Deposit's effective interest rate. Using the FD Premature Withdrawal Penalty Calculator, you can calculate the amount you will receive as a result of withdrawal of funds before maturity.

Take a look at this:

Principal Amount 1 lakh
Interest at the time of FD Booking for a year 7% per annum
Maturity amount after one year INR 1,07,186
Interest Rate on 6-month FD at time of Booking 6.25%
Penalty charges due to Premature Withdrawal 0.50%
Effective Interest Rate Payable 5.75%
Amount received INR 1,03,213

Closure Charges on a Fixed Deposit

Waiver of Closure Charges

Closure charges are fees levied by banks when a fixed deposit is closed prematurely. However, some banks may waive these charges under certain circumstances, such as:

  • After a certain period: If the fixed deposit is closed after a specific period, such as 1 year, some banks may waive the closure charges.
  • Death of the account holder: If the fixed deposit is closed due to the death of the account holder, banks often waive the closure charges.
  • Court order: If the fixed deposit is closed due to a court order, the closure charges may be waived.

It’s important to check with the bank to know the specific circumstances under which closure charges may be waived. Understanding these conditions can help you make informed decisions about your fixed deposit investments.

What should you do?

You may incur fees if you prematurely withdraw from your FD or if the effective interest rate is reduced. Therefore, when opting for an FD, examine the bank's terms and conditions for early withdrawal.

Calculate the consequences before deciding whether or not to break your FD. Determine how much you will lose due to the penalty (if any), the reduced effective interest rate (if any), and the early withdrawal of the FD.

Disclaimer: Articles published on the website are merely indicative and suggestive in nature and do not amount to solicitation. The contents do not guarantee the desired returns and/or results. Reader is advised to exercise discretion and consult independent advisors for achieving desired result. Visitors to this blog/ website w.r.t products & services offered by RBL Bank Limited herein, shall ensure that the comments / feedback posted shall be restricted to the contents published herein and shall not contain such language that may be un-parliamentary or against any religion, caste, section of society, political view etc. While our endeavor is to publish the comments that are submitted, however, all comments/feedback shall be subject to internal review by RBL Bank Limited. We do not guarantee that the comments that are submitted will be published.

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