Post Office Fixed Deposit Premature Withdrawal

What is Post Office Fixed Deposit Premature Withdrawal?

Premature withdrawal of a Post Office Fixed Deposit allows investors to close the deposit before its maturity date in urgent financial situations. However, certain conditions apply to early withdrawal.

Withdrawals are not permitted within the first six months. If the FD is withdrawn between 6 and 12 months, interest is paid at the Post Office savings account rate. When the withdrawal happens after one year, the interest is recalculated at 2% lower than the Post Office FD interest rate for the completed period.

The applicable interest rules based on the withdrawal period are shown below:

Period	Interest Rule
Before 6 months	Not allowed
6–12 months	Post Office Savings Account interest rate (~4%)
After 1 year	2% lower than the Time Deposit rate

How Premature Withdrawal Impacts Your FD Returns 

A Post Office Fixed Deposit being withdrawn prematurely will impact the amount of interest you get since the deposit will not be earning the originally agreed FD interest rate. Instead, the interest is recalculated for the period the money was kept in the investment. This means that the returns are typically below the contracted FD interest rate.

The revised interest rates applicable for different withdrawal durations are shown below:

Withdrawal Period	Interest Rate
6 Months to 1 Year	4% p.a.
Up to 2 Years	5% p.a.
Up to 3 Years	5.1% p.a.
Up to 5 Years	5.5% p.a.

Example

Let us suppose you have invested ₹2,00,000 in a 5-year Post Office FD which yields 7.5%. You withdraw it after 3 years. The interest will be recalculated at 5.1% per annum as a result of premature withdrawal, as opposed to 7.5% per annum.

Step-by-step calculation:

= ₹2,00,000 × 5.1% × 3

= ₹2,00,000 × 0.051 × 3

= ₹30,600

Total amount received after 3 years:

₹2,00,000 + ₹30,600 = ₹2,30,600

The example shows that the recalculation with a lower rate decreases the total interest as opposed to the initial FD interest rate.

How to Close a Post Office Fixed Deposit Prematurely?

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

1. Online Method

   Online closure may be possible only if your FD is linked to India Post Internet Banking and opened at a CBS-enabled Post Office branch.

   • 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 Fixed Deposit 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 Fixed Deposit Premature Withdrawal

When a Post Office Fixed Deposit is withdrawn before maturity, the interest is adjusted according to the period for which the deposit remained invested. The interest received is taxable and should be included in the depositor’s total income while filing the income tax return. If the interest amount exceeds the applicable limit under the Income Tax Act, TDS may also be applicable.

How to Avoid Post Office Fixed Deposit 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

Post Office Fixed Deposit premature withdrawal allows investors to close their deposit before maturity, but it lowers overall returns. Withdrawals are not permitted within the first six months. Interest is recalculated based on the withdrawal period, often at lower rates than the original Post Office FD rate, reducing the total interest earned.