Indian Bank FD Premature Withdrawal

What is Indian Bank FD Premature Withdrawal?

Indian Bank FD premature withdrawal means closing your fixed deposit account before maturity. This option provides liquidity in case of emergencies or unexpected financial needs. However, the interest is calculated based on the actual tenure the deposit was held, which means the final payout will be less than the expected maturity value. Before making a premature withdrawal, it is essential to review the applicable Indian Bank FD interest rates and penalties for the early closure.

How to Close an Indian Bank FD Prematurely?

Indian Bank provides digital and branch-based options for premature withdrawal of fixed deposits.

1. Online Method

   You can close your Indian Bank fixed deposit before maturity using either the NetBanking portal or the IndSMART mobile app. Both options are available to customers who have active internet banking.

   Using NetBanking 

   Log in to Indian Bank NetBanking using your User ID and Password.

   • Go to the Accounts section and select Term Deposits.
   • Choose the fixed deposit you want to close.
   • Click on the Premature Closure or Close FD option.
   • Select the savings account where you want the amount to be credited.
   • Enter your transaction password and the OTP received on your mobile.
   • The FD amount, after penalty deduction, will be credited to your account.

   Using the IndSMART Mobile App

   • Open the IndSMART app and log in using your MPIN or fingerprint.
   • Go to My Account, select Deposit Account, and tap on your fixed deposit to view details.
   • Tap on the Close Deposit option.
   • Choose the account to receive the funds and confirm the details.
   • Enter your transaction PIN and the OTP received on your mobile.
   • The FD amount will be credited to your savings account instantly.

2. Offline Method

   To close your Indian Bank Fixed Deposit prematurely at a branch, follow these simple steps:

   • Visit the closest Indian Bank branch to initiate the premature closure process for your fixed deposit account.
   • Request the FD Premature Closure Form at the branch and fill in all necessary details clearly and correctly.
   • Provide a valid photo ID like PAN card or Aadhaar for identity verification required during the closure process.
   • Hand over the completed form and ID proof to the bank’s service desk to process the premature withdrawal.

Disadvantages of Indian Bank FD Premature Withdrawal

Before opting for the premature withdrawal of your Indian Bank Fixed Deposit, consider these facts that may impact your financial goals:

• Reduced Interest Earnings: If you close your FD before maturity, the interest will be recalculated based on the actual number of days the deposit remained with the Indian Bank. An FD calculator can estimate the revised payout before initiating a premature withdrawal.
• Premature Closure Conditions for Indian Bank FDs: If an FD is closed before 181 days, a 1% foreclosure charge applies. No interest is paid if closed before 7 days.
• FD Linked to Credit Card: If your fixed deposit is pledged for an Indian Bank Credit Card Against FD, you must obtain a No Objection Certificate (NOC) confirming all dues are cleared. Without this NOC, premature withdrawal of the FD is not permitted.
• FD Linked to Loan: If the FD is used as collateral for a loan, such as a personal loan or overdraft, the loan must be repaid in full before the FD can be closed. The bank may also require a release letter before processing the request.
• Disruption to Financial Planning: Premature FD closure can also disrupt your planned savings goals, such as education, retirement, or home purchase, forcing you to reinvest at potentially lower rates.

Tax Implications on Indian Bank FD Premature Withdrawal

On premature closure of an Indian Bank FD, the interest earned is taxed under “Income from Other Sources”. As per Section 194A of the Income Tax Act, Tax Deducted at Source (TDS) is applicable at 10% on interest earned from fixed deposits. This applies if the annual interest exceeds ₹50,000 (₹1,00,000 for senior citizens) and a valid Permanent Account Number (PAN) is provided. Without PAN, TDS is deducted at 20%. Eligible individuals can submit Form 15G or 15H to avoid or reduce TDS.

How to Avoid Indian Bank FD Premature Withdrawal?

Here are smart strategies to maintain liquidity and avoid penalties on early FD closures:

• Use Indian Bank Sweep-out Facility: This sweep-out facility, provided by the Indian bank, links your savings account with a fixed deposit. Any excess balance is automatically transferred to an FD, and funds can be withdrawn in parts as needed. 
• Create Multiple Smaller FDs: Instead of investing ₹5 lakh in a single FD, consider opening five FDs of ₹1 lakh each. In case of an emergency, you can close only one deposit while the others continue earning full interest.
• Maintain an Emergency Fund: Keep at least 3 to 6 months' worth of essential expenses in a savings account or a short-term fixed deposit. This financial cushion ensures you can manage unexpected costs without needing to withdraw your Indian Bank FD prematurely.
• Opt for an Indian Bank Credit Card Against FD: This secured credit card requires no proof of income and is ideal for those with limited credit history. It will give you credit access without affecting your FD if you do not default. The card will serve you better than closing your FD, even when you require funds urgently.
• Use Overdraft Facility Against FD: The Indian Bank also provides an overdraft against FD. You are allowed to borrow up to 90% of the amount of your deposit. This helps avoid paying penalties on the FD interest rates and saves your fixed deposit.

Key Takeaways

Premature withdrawal of a fixed deposit with Indian Bank is subject to a penalty of up to 1% on the applicable interest rate. The interest is recalculated based on the actual duration for which the deposit remained with the bank. Customers can initiate the closure either online or by visiting a branch, and the withdrawn amount is usually credited within 12 working days. If the fixed deposit is linked to a credit card, a No Objection Certificate (NOC) confirming that all outstanding dues have been cleared must be submitted before proceeding with the withdrawal.