The increasing interest rates for Fixed Deposits (FDs) can benefit individual investors. Since most finance companies have raised their FD interest rates, it is the best time for conservative depositors to get higher and assured benefits on these money-saving instruments.
However, many investors are concerned about whether they can prematurely withdraw their money when needed. Don’t worry. This article will discuss a few applicable rules and charges related to premature FD withdrawals in the case of emergencies.
What is FD Premature Withdrawal?
FDs have an option for premature withdrawal, enabling depositors to close an FD account before maturity. However, they might have to pay penalties or compromise on their return.
Finance companies reduce the returns to prevent unnecessary withdrawals and promote healthy saving habits. Certain companies allow depositors to withdraw their FDs without imposing any charges but reducing their FD returns. However, it depends on the FD provider’s terms and conditions.
Understanding the FD Categories to Better Comprehend the Premature FD Withdrawals
Broadly, FDs are of two types:
- Cumulative: When an investor opens a cumulative FD, they do not receive any interest during the FD deposit period. The company deposits the accumulated interest in the depositor’s account only at maturity, along with the principal amount. If they withdraw their FD before maturity, they get returns according to the savings account interest rate.
- Non-Cumulative: With a non-cumulative FD, the depositor gets the interest amount each month, quarter, or year according to their selected option. If the depositor withdraws such FD before maturity, the company deducts the interest paid from the maturity amount.
Those wishing to enjoy tax benefits from their investments must choose a tax-saving FD worth Rs 1.5 lakh with a minimum lock-in period of five years. However, one condition is that depositors cannot withdraw these FDs before the lock-in period or take a loan against them.
Rules Regarding Premature FD Withdrawals
One must invest in an FD account only when they are sure they will not need that money for that duration. However, in an emergency, if the depositor feels they need the amount stuck in an FD, they can withdraw it according to the finance company’s rules. For instance, NBFCs like Muthoot Capital have the following rules and regulations for premature FD withdrawals.
- A depositor cannot withdraw an FD within the first three months of opening the account, except in the event of the depositor’s death.
- If a depositor withdraws an FD after three months but before six months of opening the account, they will not receive any interest payment. If they have already received interest in case of a cumulative FD, the company will deduct it from the principal amount before finally settling the account.
- Suppose a depositor prematurely withdraws the FD after six months of opening the account. In that case, the interest rate will be around 2% less than the applicable interest rate for the predetermined FD duration.
- If the interest rate is not specified, the interest will be 3% less than the minimum rate of deposit acceptance.
- If the depositor has received excess interest, the company will recover it from the principal amount before settling the account.
Now that the rules and charges for FD premature withdrawals are clear, one must consider the variables, tenures, maturity dates, interest rates, etc., before deciding whether to take the final step. One must refrain from withdrawing Fixed Deposits prematurely to get the desired benefits and maximum earnings.