FD Premature Withdrawal Penalty Calculator

FD Premature Withdrawal Penalty Calculator calculates the penalty imposed on the investor for premature withdrawal of money. Fixed Deposit (FD) is the most shielded investment choice with low risk provided to the investors with guaranteed returns.

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What is Premature Withdrawal of FD?

Premature withdrawal is the withdrawal of the invested money before completing the maturity period; it is also called breaking the FD. The investor can choose the premature withdrawal option, and they can withdraw the amount in FD if in need of money. 

Banks will allow the premature withdrawal option to the investors by imposing a penalty. Generally, this penalty ranges between 0.5% and 1%, whereas some banks charge zero penalties. This zero penalty will be levied not only for the cash emergency but also if the depositor chooses the other alternative option for the investment provided by the same financial institution. 

Check Also: HDFC Bank FD Premature Withdrawal Penalty Calculator

Difference Between Simple Interest and Compound Interest

FD premature withdrawal penalty is levied on the interest of the FD amount, which means the penalty will be deducted from the booked interest so that the rate of interest will be lowered. With the reduced interest rate, the final maturity amount will be calculated. 

The penalty-imposed interest rate, i.e., the lowered interest rate on FD, will be calculated either in Simple Interest or in Compounded Interest. Therefore, the depositor can gain interest on the invested amount on simple interest, which is calculated by the formula SI= PTR/100, where P= Principal amount, T= Tenure, R= Interest rate (reduced).

However, on Compound interest, the depositor can gain interest in the principal amount and accrued interest.

FD premature withdrawal penalty will be calculated on a compound interest using the formula, 

A=P (1+r/n) *n*t

A= Final Maturity Amount, P= Principal Amount, r= Interest Rate (reduced), t= Tenure, n= Compound Interest Frequency and I= Interest Earned.

Advantages of the Calculator

The following are some of the advantages of using the FD premature withdrawal penalty calculator:

  • Estimates the accurate penalty rate and final maturity amount.
  • No chance for human errors.
  • It helps to calculate easily sitting at home instead of visiting the bank and calculating manually.

How Can FD Premature Withdrawal Penalty Calculator Help?

This calculator will help the depositor to calculate the penalty on withdrawing the FD amount prematurely; this penalty will be imposed on the interest that needs to be paid to the depositor. 

In addition, this calculator will provide detailed information about how much penalty is imposed. Also, it helps to calculate how much interest is lowered on withdrawal. 

By calculating the penalty through a premature withdrawal calculator, the depositor will get to know how many penalties he will pay, how much interest will be lowered, and the disadvantages (if any) of withdrawing the money prematurely. 

In addition, he can analyze the returns that he is going to get on withdrawal and how much they lose due to penalty so that either they can/ hold themselves from withdrawing the FD amount or withdraw the amount.  

How Does the Calculator Work?

FD Premature Withdrawal Penalty Calculator calculates the FD amount for withdrawing the money before the maturity date. This penalty is imposed on the interest that needs to be paid by the Bank to the depositor. In comparison, this calculator works differently from one bank to another. 

If the investor chooses to withdraw the amount prematurely, the FD amount's interest rate is lowered compared to the booked interest rate. Interest will not be paid to the depositor if they withdraw the amount within the minimum period to withdraw mentioned by the concerned Bank.

The financial institutions will calculate this withdrawal penalty in two modes, assuming the bank imposes a 1% penalty on premature withdrawals. They are: 

  1. Mode-I

    Suppose a person availed of 2 years FD of Rs 1 lakh at a rate of 7% for 2years (where FD rates for 1year- 6.5%, 2year- 7%). He wants the break after completing one 1year. Banks will impose the penalty on revised FD rates, i.e., 6.5% - 1% = 5.5%. The interest is reduced to 5.5%.

    Principal amount

    Previous interest rate

     Interest rates on 1year

    Penalty changes on premature withdrawal

    Effective interest rate

    Final interest rate

    Final Maturity amount after premature withdrawal

    Rs 1,00,000

    7% (p.a)

    6.5% (p.a)

    1%

    6% (p.a)

    5.5% (p.a)

    Rs 1,05,614

  2. Mode-II

    Suppose a person availed of 2 years FD of Rs 1 lakh at a rate of 6% for 2 years. He opted for withdrawal after completing the 1 year. Here the effective interest rate is lower than the booked interest rate. Therefore, banks will impose the penalty on effective FD rates, i.e., 6%-1%=5%. Thus, the interest is reduced to 5%.

    Principal amount

    Previous interest rate

     Interest rates on 1year

    Penalty changes on premature withdrawal

    Effective interest rate

    Final interest rate

    Final Maturity amount after premature withdrawal

    Rs 1,00,000

    6% (p.a)

    6% (p.a)

    1%

    6% (p.a)

    5% (p.a)

    Rs 1,05,095

    *The figures mentioned above are estimated figures.

    The depositor can calculate the penalty both online and offline. For example, they can visit the concerned Bank to calculate the penalty on premature withdrawal. Or they can see the bank's official website to calculate the penalty. 

    To calculate the penalty online, the depositor has to enter the asked details. The calculator will display the penalty payable after withdrawal and the final amount receivable on withdrawal on entering the details.

FAQ's

Written By: PolicyBazaar - Updated: 14 July 2021
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