What are FD Breaking Charges: Calculate Your Penalty

What are FD Breaking Charges: Calculate Your Penalty


Fixed Deposits (FDs) are one of the most popular investment options for those seeking safety and guaranteed returns. But what happens if you need to withdraw your money before the agreed tenure? This is where FD breaking charges come into play. Many investors ask: Can we break FD before maturity? The answer is yes, but it comes with a cost. In this blog, we’ll explain premature closure of FD, how penalties are calculated, and introduce you to an easy way to estimate charges using an FD premature withdrawal penalty calculator.

Can We Break FD Before Maturity?

Life is unpredictable. You might need funds urgently for medical expenses, education, or any unforeseen situation. Banks allow you to break your FD before maturity, but this convenience comes with certain conditions:

  • A penalty is charged on the interest earned.
  • The effective interest rate may be lower than the original contracted rate.
  • Some banks have a fixed penalty percentage, while others adjust based on tenure completed.

What is Premature Closure of FD?

Premature closure of FD refers to withdrawing your fixed deposit before the end of its agreed tenure. While FDs are designed for stability, early withdrawal disrupts the bank’s planning, hence the penalty. The penalty usually ranges between 0.5% to 1% on the applicable interest rate. For example:

  • If your FD was booked at 6.5% for 2 years but you break it after 1 year, the bank will apply the 1-year rate minus the penalty.
  • This means your actual earnings will be lower than expected.

FD Breaking Charges Explained

FD breaking charges are not a flat fee; they depend on:

  • Original tenure vs completed tenure
  • Applicable interest rate for the completed period
  • Penalty percentage as per bank policy

For instance:

Original FD: ₹1,00,000 for 2 years at 6.5%
Broken after 1 year
1-year rate: 5.5%
Penalty: 1%
Effective rate: 4.5%

Your interest will be recalculated at 4.5% instead of 6.5%.

How to Calculate FD Premature Withdrawal Penalty

Manual calculation can be confusing. That’s why banks and financial websites offer an FD premature withdrawal penalty calculator. This tool helps you:

  • Enter your deposit amount, original tenure, and interest rate.
  • Specify the breaking date.
  • Instantly view the revised interest and penalty amount.

Tips Before Breaking Your FD

  • Check if you have alternative sources of funds before breaking your FD.
  • Compare the penalty amount with the urgency of your need.
  • Consider partial withdrawal if your bank allows it.
  • For future planning, keep some funds in short-term FDs for emergencies.

Final Thoughts

Breaking an FD is possible, but it comes at a cost. Understanding FD breaking charges, knowing can we break FD before maturity, and using an FD premature withdrawal penalty calculator can help you make informed decisions. Always weigh the penalty against your financial need before opting for premature closure of FD.

Also Read: Investing in Tax-Saving Fixed Deposits: What You Need to Know