FD: Following the Reserve Bank’s decision to lower the repo rate from 6.50% to 6.25%, discussions regarding the decrease in interest rates offered by banks on fixed deposits (FDs) have become more pronounced.
Consequently, individuals who have invested significant sums in fixed deposits are increasingly concerned. Many are contemplating the premature withdrawal of their FDs to invest in financial instruments that promise higher returns. However, those who act hastily without careful consideration may encounter negative repercussions.
Banks typically impose penalties for early withdrawal
It is essential for investors to recognize that banks typically impose penalties for early withdrawal, which could result in financial losses. It is important to note that such penalties may be waived under specific conditions.
Penalty for premature withdrawals
For instance, the State Bank of India applies a penalty of 0.5% for premature withdrawals of term deposits up to Rs 5 lakh, while a penalty of 1% is levied on term deposits exceeding Rs 5 lakh. In contrast, Punjab National Bank offers a reduced interest rate of 0.5% or 1% less than the FD rate for early withdrawals. Similarly, HDFC Bank deducts 1% from the FD interest rate for premature withdrawals.
The possibility of waiving the penalty exists, but it is contingent upon certain conditions, such as reinvesting in a long-term FD with the same bank. Therefore, before making any decisions, investors should thoroughly understand their bank’s penalty structure and the interest implications associated with premature withdrawals. It is worth noting that different banks impose varying penalties for early withdrawal of FDs, typically ranging from 0.5% to 1%.
