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 ₹5,33,700 instead of the ₹5,46,300 the original rate would have given — a loss of roughly ₹12,600.
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No. Five-year tax-saving FDs under Section 80C have a mandatory lock-in and cannot be withdrawn prematurely.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.