Fixed Deposit Premature Withdrawal: Things to Consider and Potential Consequences

There is no doubt in the fact that the Fixed Deposit Interest Rate is lucrative in our country, leading to more and more belief in FD investments. Moreover, due to its assured returns, more and more people prefer this investment mode. 

Nowadays, you don’t have to worry about going anywhere in order to invest in the same. When you finally decide to invest, keep a goal in mind and make sure you complete the tenure. This is because premature withdrawal leads to many consequences. 

What is a fixed deposit?

Also known as a term or time deposit, a fixed deposit is a financial instrument which is offered by banks as well as financial institutions that allows individuals to deposit a lump sum of money. Keep in mind that this is done for a predetermined period of time at a fixed rate of interest. 

FDs are undoubtedly the most popular among investors seeking a safe and stable investment option with assured and predictable returns. 

(Tip: Calculate FD interest before investing your hard-earned money.)

What are the things to consider and the potential consequences of FD premature withdrawal?

  • Reduced Interest

Financial institutions impose a penalty for those who initiate a premature withdrawal, which can totally vary based on the bank’s policy and the term of the FD. The penalty is usually a percentage of the interest that would have been earned had the deposit been held until maturity. 

  • Impact on goals

Withdrawing funds from an FD early may disrupt your financial goals but will always fulfil your immediate expenses/desires. The funds here might have been earmarked for a particular purpose, and withdrawing them before the term ends could lead to a shortfall in meeting those goals. 

  • Tax implications

The interest amount earned on FDs is obviously subject to taxation. Premature withdrawal may affect the tax treatment of the interest earned, potentially leading to higher tax liabilities, especially if the interest was originally planned to be taxed at a lower rate due to the longer tenure. 

  • Loss of interest earnings

Premature withdrawal means that the FD will not earn the full amount of interest that was initially calculated by the potential investor with the help of the Fixed Deposit Calculator for the entire term. This loss can impact the overall returns on the investment. 

How to invest in a fixed deposit?

Nowadays, investing in a fixed deposit is as easy as ordering groceries from your smartphone while sitting in your comfort zone. Around a month ago, when I was planning to invest in the same, one of my friends told me about the Bajaj Finserv application. 

Not only for fixed deposits but believe me, once you open this application, you’ll be amazed to see the vast things they have to offer. Here is a step-by-step guide to investing via this app:

  1. Download the app from the App Store/Play Store depending on your device.
  2. Sign up after entering your mobile number.
  3. On the home page, you will see an icon for Fixed Deposit. 
  4. Click on it and use the in-built fd interest rates calculator to simulate different situations by changing the customer type, deposit amount, tenure, and interest payout frequency. 
  5. This will help you make the best decision and get the best return on your investment. 
  6. Once you are satisfied with it, click the invest now button on the FD page.
  7. Fill in those values, and you are good to go.

Moreover, this application also has a Fixed Deposit Calculator Online to help you plan your investment out.