Fixed deposits are the most conventional and basic investment preferred for their guaranteed return as well as safety. These come with short to longer investment term of as less as 7 days to a maximum tenure of 10 years. Further, this instrument comes with premature withdrawal facility that is though not allowed in all FD products but with early redemption investor has to bear a cost as some charges.
For instance, HDFC Bank charges a penalty of 1%, while SBI for premature breaking of FD with the bank of up to Rs. 5 lakh will attract 0.5%. Notably, this penalty is charged on the interest that is payable to the investor. Also, some of the NBFCs such as City Union Finance do not allow premature withdrawal within 3 months of investments or in case of withdrawal after 3 months but less than 6 months from the deposit month no interest shall be paid. Also, for withdrawal before the maturity term but after six months period, will provide 2% lower interest rate than actually applicable on the scheme.
Here we will delve on how the interest rate is offered to you if you redeem or withdraw or break your bank or corporate or fixed deposit at an NBFC prematurely i.e. before its investment tenure ends:
How Interest On Bank Fixed Deposit Is Calculated In Case Of Breaking It Prematurely?
Effective interest rate received in case of premature withdrawal of fixed deposit instrument is booked or card rate whichever is lower less the penal interest charged for premature withdrawal. Also, the rate is decided based on the tenure for which the FD has remained at the financial institution.
Illustration: Say for instance if a person books FD for say 2 years of Rs. 2 lakh and withdraws that prematurely after 1 year due to some financial crisis then the rate payable will be the one that was applicable for 1-year FD at the time of opening the deposit account i.e. 5.75% in this case.