What is the FD Premature Withdrawal?
Breaking an FD early triggers a double penalty that most depositors do not expect. First, interest is recalculated at the rate applicable to the period you actually held — not the rate you booked. Second, a penalty of 0.5–1% is deducted on top.
So a 3-year FD booked at 7.5% but broken after 14 months might earn only 6.5% minus 1% = 5.5%.
Formula & worked example
Amount = P × (1 + effective rate/4)4 × years held
Worked example: ₹5,00,000 booked at 7.5% for 3 years, broken after 14 months. The 14-month card rate is 6.5%, less a 1% penalty = 5.5% effective. You receive about ₹5,32,902 instead of the ₹5,46,300 the original rate would have given — the penalty alone costs ₹12,377 of interest.
How to use this fd premature withdrawal calculator
- Enter the deposit and the rate you originally booked.
- Enter the bank's card rate for the period you actually held.
- Add the penalty — usually 0.5% to 1%.
- Compare the amount received against holding to maturity.
Smart tips
- A loan against the FD (typically 1–2% above the FD rate) is often cheaper than breaking it.
- Sweep-in FDs break only the portion needed, leaving the rest earning the original rate.
- Laddering across multiple smaller FDs means you break only one rung rather than the whole amount.
- Some banks waive the penalty if you reinvest the proceeds in a new, longer deposit.
- Tax-saving 5-year FDs cannot be broken at all before maturity.
Frequently asked questions
What is the penalty for breaking an FD?
Typically 0.5–1% deducted from the applicable rate. Crucially, interest is also recalculated at the card rate for the actual period held, not the booked rate.
Can I avoid the FD premature withdrawal penalty?
Take a loan against the FD instead — usually 1–2% above the deposit rate, which often costs less than breaking it.
Do all banks charge a premature withdrawal penalty?
Most do, though some waive it for senior citizens or small deposits. Check the terms before booking.
Can I break a tax-saving FD early?
No. Five-year tax-saving FDs under Section 80C have a mandatory lock-in and cannot be withdrawn prematurely.
Want the theory behind the numbers? Read our FD guides on the Money Blog.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 30 Sep 2026. How we check these numbers.