If you are having to withdraw from your fixed deposit prematurely because of an unforeseen situation or emergency, it is important for you to know what the possible consequences of premature withdrawal of FD could be. The following are the possible financial consequences of premature withdrawal of FD:
1. Lower Interest Rate And Closure Penalties
The interest rate that is offered to you on an Fixed Deposit would be higher for a longer tenor. The rate of interest for an FD with a 4-year tenor, for example, would likely be 7.05%. On the other hand, an FD with a 1-year tenor would likely be 5.90%. Therefore, when you withdraw from your FD at a premature date, the interest rate charged would be according to the day you opened the FD and the period of time it remained open. Your issuer may also charge you a certain fee for the premature withdrawal of FD.
2. Rate Of Interest On A New FD Might Drop
In some economic climates, the rate of interest on FDs might drop. There can be no guarantee that the rate of interest would be as high as it was when you had opened your account in the first place. A premature withdrawal of FD comes with the possibility of you being susceptible to a lower rate of interest in the future in case you wish to open another FD account shortly.
3. Changing Your FD For A Higher Rate Of Interest Would Not Always Pay
You may be planning on closing your FD account only to reinvest the money with a different issuer who is offering you a higher interest rate. In that case, it is best if you make certain calculations before making a decision. You need to calculate the amount of money that you would lose as a consequence of a premature withdrawal of FD. It is always a possibility that the new FD that you are considering would perhaps offer you the same or maybe even lower returns if you consider it.
4. If You Require Immediate Cash, Taking A Loan Against The FD Would Be A Better Option
If you are in need of urgent financial assistance, it would be a better idea for you to take a loan against the FD you have, instead of making a premature withdrawal of FD. A loan against FD would come with a much better rate of interest than a personal loan. In most cases, the rate of interest set by the issuer is just 1-2% higher than your FD’s rate of interest. Furthermore, if your FD remains intact, you will continue earning interest.
An FD that comes with assured returns at a competitive rate of interest is a long-term investment plan that you should not break easily. It would be a good idea to consider a loan against FD or your other available financial plans instead of breaking your FD before maturity.
However, if any of the other options do not work out for you, breaking an FD is an easy procedure. There is an online application that you need to submit for a premature withdrawal of FD. It is always a good idea for you to choose an issuer that allows a simple and fast process of premature withdrawal of FD so that you can go ahead with such a decision hassle-free at a time of immediate emergency.