Fixed Deposit (FD) accounts are coveted income sources that allow depositors to earn hefty interest payments over a definite period. Typically, banks and financial institutions provide fixed deposit accounts at interest rates higher than savings deposit accounts. Individuals may forgo current consumption for a considerably higher matured amount in the future.

Most financial institutions provide an FD interest calculator that allows depositors to estimate their matured payments. Usually, FD accounts can be cumulative or non-cumulative depending on a lender’s choice of offering and enabling premature interest withdrawal. Depositors who want provisions for monthly/quarterly/bi-annual withdrawal of interest payments may choose non-cumulative fixed deposit accounts. But are you looking at breaking your FD account prematurely? Expect considerably lower interest payments in that case. Premature withdrawal of fixed deposits affects your interest calculation. 

Normal scenario:

Interest payments for fixed deposit or immobile accounts are calculated just like on any other deposits. Financial institutions often prepare a tentative chart that defines interest rates, timings, principal amounts and their corresponding interest payments.

To maximise the incidence of higher returns, depositors can deposit amounts of up to Rs.50 lakh. This would enable them to enjoy higher interest rates. Additionally, most financial institutions guarantee an additional interest rate increment for senior citizens. However, what most depositors forget while planning to increase their earnings is to avoid premature withdrawals.

Explained: Premature withdrawal of FD

Whether it is a small deposit or larger sum, premature withdrawal of fixed deposits attracts significant penalties. As a thumb rule, banks and financial institutions calculate net received amount after withdrawal as (Deposited amount * interest rates for given term at the time of depositing) – 1%. Depositors often ask what is the penalty for premature withdrawal of a fixed deposit. This is determined as per the institution’s premature withdrawal penalty scheme.   

Technically, fixed deposit accounts

–    Are more secure and offer steady incomes on maturity

–    Help savings mature with greater value.

–    Are easier to calculate using FD calculator.

On premature withdrawal, fixed deposits attract considerable penalties that banks and financial institutions charge for attempting to withdraw before maturity. Thus, a fixed deposit withdrawal before maturity is a potential obstruction to earning higher interest payments. On withdrawal, fixed deposits lose their value because lenders are unable to put your deposits on loans. This financial loss can be calculated using a penalty calculator available online.

Fixed deposits grow with time until their maturity. Their drive towards maturity can be harmed in case investors withdraw before completion of tenor. Technically, withdrawal of an FD within one year (set to mature in 3 years) typically results in interest payments for one year without extra deductions. However, some banks and financial institutions charge an additional penalty of 1% on premature withdrawal. They can be calculated using an FD premature withdrawal penalty calculator.

Cases of emergency:

But what should depositors do in case of an emergency and in dire need of money?

  a) Multiple FDs:

Depositors can open multiple fixed deposit accounts. Experts claim that through careful back calculation, you can quickly calculate net interest payments on your deposits in a specific time period.

For example, in case of a consolidated principal amount of Rs.5 lakh, depositors can divide this sum into two unequal halves. Thus for an FD of Rs.3.5 lakh for 18 months, depositors can expect higher interest payments than that on the remaining Rs.1.5 lakh set to mature in 12 months. In case of an emergency situation, the smaller deposit can be withdrawn leaving the bigger share intact.

   b) Single FD approach:

Again, depositors may also choose to open one FD account and put the remaining in a savings deposit account. This would serve as a risk-free measure to earn definite payments without harming its earning capacity.

Unless facing unavoidable circumstances, depositors should refrain from premature withdrawals.

Fixed Deposits provide a lucrative interest rate and a reliable interest flow that helps you plan and manage your expenses easily. You can accumulate your wealth and grow your corpus with stable returns. This makes Bajaj Finance FDs one of the best investment avenues for growing your savings.



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