When should you withdraw from your fixed deposit investments?

When we talk about parking our surplus funds into top investment option, FD or fixed deposit comes into our mind where we can put our savings to earn decent returns with the involvement of minimum risk. Fixed deposit interest rates can give you better and higher returns than your savings or current account. An FD is the safest way to grow your money in a hassle-free manner. But make sure when you plan to invest in FD, you should know about all of its terms and conditions, a process of premature withdrawal, penalty on premature withdrawal etc to save yourself from any kind of problem that might occur in future when you plan to break your FD In case of an emergency situation arises.

fixed deposit

What is Breaking of Fixed Deposit?

Breaking of an FD means withdrawing the amount from your FD account before its maturity. It is also known as Premature Withdrawal from Fixed Deposit. You should consider breaking your FD account only when an emergency arises.

Why would people like to break the Fixed Deposit?

Although breaking an FD account attracts a penalty but you might face any emergency situation like some medical treatment, in such a situation you are allowed to break your FD account before it expires. Usually, a penalty of up to 1% is levied when you break your FD before maturity. However, there are some of the lenders like Yes Bank and Bank of Maharashtra who waives off this penalty when the liquidation is due to some emergency.

What is the premature closure penalty?

Banks usually levy a penalty in the form of a 0-1% lower interest on customers who are looking to close their FD account before maturity. However, penalty amount may vary from bank to bank depending upon the situation for which you are breaking your FD account. Most of the lenders use this formula to calculate the rate of interest in case of a premature withdrawal

Formula: Interest Rate for Premature FD Withdrawal = Interest Rate that applies for the actual FD period as per the interest rates while investing – 1%

In what situation you can withdraw from your fixed deposit investment?

There are some situations, in which you can withdraw your deposit amount to meet your general and personal requirement. For any medical emergency, funding your trip, paying for your education or marriage etc. This is possible only when you request your lender by telling them the valid reason why do you want to break your FD before maturity.

In my opinion, instead of breaking your FD if it’s not that important, you should consider renewing your FD since this will help you to keep earning interest income on your investment and you will be able to grow your wealth faster. Hence, it is wiser to withdraw your accumulated funds from an FD account only when it gets matured, not before ita maturity which levies you a penalty.

Therefore, it is advisable to check the penalty on premature withdrawal on FD and interest rate so that you do not lose your money when you break your FD before it gets matured. But make sure, if you have invested your money in a 5-year tax saving FD, then you can’t withdraw your money before it expires.

READ ALSO: Everything you need to know about tax on Fixed Deposit

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