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What Happens if You Break Your FD: FD Breaking Charges

mahindra-finance-author

by Mahindra Finance

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February 29, 2024

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5 mins read

Fixed deposits (FDs) are a popular investment option in India due to their security and attractive returns. However, there may be instances where you need to break your FD before its maturity date. In this article, we will explore the consequences of breaking an FD prematurely, focusing on the FD breaking charges incurred and other important factors.

Understanding FD maturity date

Before we delve into the repercussions of breaking an FD early, let's first understand what the maturity date signifies. The maturity date is the fixed period for which you have deposited your money in an FD. It is the date when you can either reinvest the funds or withdraw them along with any interest earned.

Upon maturity, there are two common scenarios:

  • Automatic renewal: The FD is automatically renewed for one year or for the previous tenure specified by you.
  • Liquidation and transfer: The principal amount and interest earned are automatically transferred to your selected account.

Withdrawal Options: FD Premature withdrawal vs. Upon Maturity

As an investor, you have two options for withdrawing funds from your FD:

  • Withdrawal upon maturity: At maturity, you can choose to liquidate or withdraw your FD by visiting a branch or using net banking facilities.
  • Premature withdrawal: If you require immediate funds before the maturity date, you can opt for premature withdrawal. However, it's important to note that banks usually charge an FD premature withdrawal penalty.

Penalties and charges for breaking an FD early

When you break an FD before its maturity date, there are several consequences you need to be aware of:

  • Loss of interest earned: One of the main advantages of FD is the compounding interest they offer. By reinvesting the interest earnings, your returns grow over time. However, when you break your FD prematurely, the interest calculation is adjusted accordingly. This means that you may lose out on some of the interest you would have earned had you waited until maturity.
  • FD breaking charges: Financial institutions impose penalty charges for premature or partial withdrawals to compensate for the loss they incur due to early withdrawal. The penalty amount can vary depending on the bank and can range from 0.50% to 2% or even higher.It's important to carefully read the terms and conditions of your FD agreement to understand the specific penalties and charges for breaking FD that apply.
  • Effect on tax liabilities: Premature withdrawal from an FD can also affect your tax liabilities. The interest earned on fixed deposits is subject to taxation, and banks deduct tax at source (TDS). However, when you withdraw your deposit before maturity, the TDS is adjusted based on the reduced interest rate for premature withdrawals. This may result in changes in your tax payments.
  • Cumbersome process: Breaking an FD prematurely can be a cumbersome process at times. It involves paying penalty charges and sometimes physically visiting the bank branch to complete the withdrawal. This process can be time-consuming and may cause inconvenience.

It's important to carefully consider these consequences before making the decision to break your FD prematurely. Ensure that you have explored all other options for arranging funds and evaluate the impact on your overall financial plan.

Conclusion

Breaking an FD before its maturity date should not be taken lightly due to the potential financial repercussions. It's crucial to weigh your options and consider alternative solutions before resorting to premature withdrawal.

One possible solution is taking a loan against your FD rather than breaking it entirely. Mahindra Finance offers attractive loan options where you can use your FD as collateral and receive funds without incurring penalties or losing out on interest earnings. This allows you to meet your immediate financial needs while keeping your deposit intact.

To learn more about Mahindra Finance's offerings and explore how they can help you navigate through financial challenges, visit their website or get in touch with their customer support team.

By understanding the consequences of breaking an FD early and exploring suitable alternatives like Mahindra Finance's loan against the FD facility, you can make informed decisions and maintain financial stability in the long run.

FAQs

Q: Can I break my tax-saving fixed deposit before maturity?

No, tax saving fixed deposits typically have a lock-in period of five years and do not permit premature withdrawals.

Q: What happens if we break FD before maturity?

A: When you break your FD prematurely, the interest calculation is adjusted accordingly. This means that you may lose some of the interest you would have earned had you waited until maturity.

Q: Are there any exceptions to penalty charges for premature FD withdrawal?

A: Some banks offer certain exemptions or relaxations on penalty charges for specific situations such as medical emergencies or senior citizens. It's advisable to check with your bank for more details.

Q: Can I break my FD online or do I need to visit a branch?

A: The process of breaking an FD can be done both online and by visiting a branch. However, physical visits to the bank may be required in some cases.

Q: Are there any alternatives to breaking an FD prematurely?

A: Yes, instead of breaking your FD prematurely, you can consider taking a loan against it. This way, you can access funds while keeping your deposit intact.

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