Even today, a large number of people in the country prefer to invest in the Fixed Deposit Scheme of the bank. While investing in FD scheme, you have to choose a period in which you invest your money in the bank.
Your money is locked for this period, which is available with interest returns after maturity. However, in case of emergency, you can break this FD even before maturity. This is called Premature FD Withdrawal. In this news, we will talk about how the penalty is usually imposed for breaking the fixed deposit before the maturity date.
Premature withdrawal allows investors to withdraw investment money before maturity if needed. If customers break their FD prematurely for the need of money in emergency, then they have to pay a fixed amount to the bank as a fine. In traditional FDs, a penalty of 1% is usually applicable on the interest amount on premature withdrawal. This penalty is imposed on the interest money.
Example: Maturity of 5 years, but to be broken in 1 year FD
investment: Rs 1 lakh
FD tenure: 5 years
Interest on 5 years: 7%
Interest on 1 year: 6%
If the penalty is 1 percent and the FD is broken after 1 year, then the effective interest rate will be considered as 6-1=5 percent.