What is the penalty for breaking FD ?

Hey,

FD or fixed deposit is a good investment option. You just need to deposit a fixed amount into an account each month for a set tenure. It is mentioned in the terms and conditions what will happen in the Premature closure of FD. You have to give consent to paying the taxes in the bank paperwork for opening FD. 

What is the penalty for breaking FD?

When you breach the contract and withdraw the FD amount before the maturity period. You will have to incur a penalty. You will lose the interest amount earned on the FD principal amount. Moreover, the interest paid to date will be recovered from the Fixed deposit account. 

The Penalty for premature closure of FD ranges between 0.5% and 1%. There are many banks that charge zero penalties for withdrawing FD amounts before maturity time. It is up to the banks' discretion to charge and decode what alternative option for the investment can be provided. 

I will share an example of how the charge is calculated. 

If an individual availed of 2 years FD of Rs 1 lakh at the rate of 7% for two years (where FD rates for 1 year- 6.5%, 2 years- 7%). 

Let's further assume that the individual/customer will break FD after completing one 1year. Banks will impose the penalty on revised FD rates, i.e., 6.5% - 1% = 5.5%. 

The customer will be charged 5.5% on the FD amount. 

Last point, Premature closure of FD is also known as breaking the FD.