Premature Withdrawal
Definition
Closing or partly withdrawing a fixed deposit before maturity; the bank recalculates interest for the period held and deducts a penalty. Tax-saving FDs are generally locked in.Premature withdrawal is when you end a fixed deposit before its maturity date, either by closing it fully or withdrawing part of it. Most regular FDs allow this, but the bank recalculates interest at the rate applicable for the period the deposit actually stayed with the bank — usually lower than the contracted rate — and deducts a penalty (commonly around 0.5% to 1%, varying by bank, amount and tenure). The principal is always returned. Tax-saving 5-year FDs generally cannot be withdrawn early due to a statutory lock-in, and an FD withdrawn after maturity carries no premature penalty.
Related guides
Related terms
- Fixed Deposit (FD) — A deposit that locks a sum with a bank for a fixed term at a pre-agreed interest rate.
- Recurring Deposit (RD) — A deposit where a fixed amount is paid in every month for a set term at a fixed rate.
- TDS (Tax Deducted at Source) — Income tax that a payer deducts before paying interest or other income, and deposits with the government.
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