Union Bank of India FD Premature Withdrawal

What is Union Bank of India FD Premature Withdrawal?

Union Bank of India FD premature withdrawal refers to closing a fixed deposit before its maturity. If withdrawn after 7 days, the applicable interest rate is reduced based on the tenure completed, and foreclosure charges may apply. The applicable Union Bank of India FD rates will be the lower of the rate on the date of deposit for the actual tenure completed or the prevailing rate on the date of withdrawal. This premature withdrawal penalty is not applicable in certain cases, such as Flexi Term Deposits and bank-initiated closures like the invocation of security deposits.

How to Close Union Bank of India FD Prematurely?

Union Bank of India allows premature FD closure via online and offline channels, making the process convenient for account holders.

1. Online Method

   Customers who know how to use digital banking can easily start a Union Bank of India FD premature withdrawal through the mobile app (Vyom) or Internet Banking.

   • Log in to Union Bank’s mobile app or Internet Banking platform.
   • Navigate to your FD account and select the FD you want to close.
   • Choose the ‘Premature Withdrawal’ option.
   • Confirm and authenticate the transaction.
   • The adjusted maturity amount is usually credited on the same day

2. Offline Method

   Here’s the offline process for depositors who prefer to in-person banking:

   • Visit the nearest Union Bank of India branch.
   • Request FD premature closure by filling out the FD withdrawal form.
   • Submit necessary documents such as proof of a valid ID and the original FD certificate.
   • The bank will process your request, and the funds will be credited to your linked savings account within 24 to 48 hours.

Disadvantages of Union Bank of India FD Premature Withdrawal

While premature withdrawal provides liquidity, it comes with several downsides that affect your interest earnings and financial planning.

1. Union Bank of India FD Premature Withdrawal Charges:

   For retail deposits below ₹2 crore, a 1% penalty is deducted from the applicable FD interest rates. This applies if the deposit has been completed for at least 7 days. The final rate is the lower of the rate on the deposit date for the completed tenure or the booked rate.

2. Reduced Interest Earnings:

   Interest is recalculated based on the actual tenure the deposit remained with the bank. The 1% penalty is then deducted, resulting in a lower effective yield. This can significantly affect long-term savings, especially for high-value FDs that were locked in at higher rates.

3. Processing Delays:

   While most online transactions are processed instantly, offline closures can take 24–48 hours. Delays may also occur due to holidays, documentation issues, or joint account signatures.

4. Restrictions on Linked Credit Facilities:

   If your fixed deposit is pledged for a Union Bank of India credit card against FD or any other secured loan, premature withdrawal is not permitted until all dues are settled. A No Objection Certificate (NOC) is required to release the FD from the lien.

Tax Implications on Union Bank of India FD Premature Withdrawal

The interest earned on a prematurely withdrawn FD is fully taxable under the head “Income from Other Sources.” Union Bank of India deducts Tax Deducted at Source (TDS) under Section 194A if the total interest exceeds ₹50,000 in a financial year for regular individuals or ₹1,00,000 for senior citizens. If PAN is not provided, TDS is deducted at a higher rate of 20%. Make sure to report the revised interest income correctly while filing your income tax returns.

How to Avoid Union Bank of India FD Premature Withdrawal

Premature closure of FDs can result in loss of interest and penalties. Here are some smart strategies to help avoid early withdrawals:

• Choose the Right Tenure: Align your Union Bank of India FD with your financial goals. Avoid locking funds for long periods if short-term needs are expected.
• Create Multiple FDs with Union Bank: Split your investment into several smaller FDs with different maturity periods. This offers flexibility and reduces the need to close the FD early.
• Maintain an Emergency Fund: Keep sufficient liquid savings or invest in instruments that offer easy access to funds, so your FDs remain untouched.
• Use Sweep-Out Facilities: Opt for Flexi or sweep-out deposit schemes where your surplus funds automatically move into or out of FDs without affecting the principal.
• Overdraft or Credit Card Against FD: Union Bank of India may offer overdraft facilities or a Union Bank of India credit card against FD, giving you liquidity without withdrawing your deposit.

Key Takeaways

Union Bank of India FD premature withdrawal is allowed only after 7 days of depositing, but it would charge a 1% interest penalty up to retail term deposits of less than ₹2 crore. The interest is recalculated taking into consideration the tenure at which interest is recalculated and the lesser of the original or the prevailing rates of FD. Premature closure can be done online and offline, with the general duration of processing ranging from the same day to 48 hours. Avoid penalties, as you consider overdraft or sweep-out, or plan FD tenures.