Post Office Bank FD Premature Withdrawal

What is Post Office Bank FD Premature Withdrawal?

Post Office Bank FD premature withdrawal refers to the closure of your fixed deposit before its maturity date, which can be useful in emergency situations like medical needs or financial crises. However, certain conditions apply. For FDs with tenures of 2, 3, or 5 years, you can withdraw after one year, but the interest rate will be 2% lower than the original applicable rate for the completed number of years.

Additionally, premature withdrawal from a 5-year FD is restricted and can only be done after four years. Before opting for premature withdrawal, one should keep in mind that the revised interest will affect the overall Post Office FD interest rate you earn.

How to Close Post Office Bank FD Prematurely?

The early withdrawal of your Fixed Deposit can be done online or offline, according to your choice.

1. Online Method

   You can request a premature withdrawal through the Post Office Bank site in case you want the convenience of online banking.

   • Log in to the Post Office Bank Website: Go to the official site and log in using your credentials.
   • Navigate to the Deposits Section: Select the main menu and then go to the Deposits section.
   • Select the Fixed Deposit to withdraw: Select the Fixed Deposit that you want to withdraw in advance.
   • Choose Premature Withdrawal Option: Choose the premature withdrawal option from the FD section.
   • Choose Your Post Office Savings Account: Choose your Post Office savings account where you want to deposit the amount you have withdrawn.
   • Authenticate the Request: Use OTP or credentials to authenticate and make your request.

2. Offline Method

   You may also use a branch of the Post Office Bank to close your FD in case you would like to be assisted in person.

   • Visit the Post Office Bank Branch: Go to your local Post Office Bank branch during working hours.
   • Bring Necessary Documents: Carry your FD receipt, authentic ID evidence, and account passbook.
   • Request the Premature Withdrawal Form: Ask the bank representative to issue the premature withdrawal form.
   • Fill Out the Form: Fill out the form and provide the required details.
   • Submit the Form and Documents: Hand over the filled form and documents to the representative.
   • Complete the Withdrawal Process: This will be withdrawn into your savings account, subject to verification.

Disadvantages of Post Office Bank FD Premature Withdrawal

Before opting for a premature withdrawal, here are the key drawbacks to consider:

• Less Interest Earnings: Your total profits are reduced, as the FD is withdrawn prior to completing the term. You miss out on better interest rates and the added interest of compound interest due to premature withdrawal.
• Post Office Credit Card Against FD: An FD pledged as security to a Post Office Bank credit card against FD may not be withdrawn prematurely until all outstanding dues are settled. A No Objection Certificate (NOC) to confirm a complete repayment might be required by the bank. Up to that time, the FD will work as collateral.
• Penalty Charges: Penalty charges on the early withdrawal of FDs at the post office bank can cost you less of your final payout. This penalty varies depending on tenure and the value of the FD.
• Impact on Financial Objectives:Fixed deposits are likely to be part of the long-term financial planning. Early retirement could interrupt or delay financial gains like buying a house or educating your children.
• Delayed Processing: The processing may be quick, but premature withdrawal may be held pending verification, and funds may not be easily available, which hampers the need for money in emergencies.

Tax Implications on Post Office Bank FD Premature Withdrawal

If you withdraw your Post Office Bank Fixed Deposit before its maturity, the interest will be recalculated based on the actual period the deposit was held. This interest will be fully taxable as Income under the "Other Sources" category, according to your applicable income tax slab, as per Section 194A of the Income Tax Act. The bank will deduct Tax at Source (TDS) at a rate of 10% on interest earnings exceeding ₹50,000 for non-senior citizens and ₹100,000 for senior citizens in a financial year.

How to Avoid Post Office Bank FD Premature Withdrawal?

The following are some of the ways to prevent the premature withdrawal of FD:

• Calculate Your Interest: With the Post Office interest rate calculator, you can select the tenure that fits your financial ambitions. By doing so, you would not have to withdraw the FD prematurely and face penalties.
• Split Up into Multiple FDs: Split up your investment into two smaller FDs with different maturities. You may have one FD and leave the rest of them in case of an emergency.
• Maintain Emergency Fund: It is always wise to maintain an emergency fund in a liquid savings account or mutual fund, so that you do not need to prematurely close your FD when there is an emergency.
• Sweep-in/ Flexi FD: Post Office Bank is providing a sweep-in facility that sweeps excess funds from your savings account into FDs automatically. This can help you avoid premature withdrawal of your fixed deposit.

Key Takeaways

Premature withdrawal FD in Post Office Bank allows you to access cash when faced with emergency needs, however, at the cost of interest, and can attract a penalty. To minimise reduced interest effects, you need to plan your FD tenure always. Alternatives such as keeping an emergency fund or sweeping into FDs should also be considered. These enable you to address your immediate requirements without influencing the higher FD interest rate that you would otherwise enjoy in the long run.