Fixed Deposits (FDs) are meant to be kept for a fixed tenure. But what if you need money urgently before maturity? That’s where premature withdrawal comes in — and usually, a penalty is applied.

In this simple guide, let’s understand how FD premature withdrawal works, how the penalty is calculated, and what you should know in 2026.

What is FD Premature Withdrawal?

Premature withdrawal means closing your Fixed Deposit before its maturity date.

For example:

• You open a 2-year FD.
• After 8 months, you withdraw the money.
• The bank applies a penalty and pays interest at a revised rate.

Quick Summary – FD Premature Withdrawal

Particular	Details
Allowed?	Yes (except Tax Saving FD)
Penalty Rate	Usually 0.5% – 1%
Interest Paid	As per the applicable tenure rate
Charges	No extra fee, but reduced interest
Tax Saving FD	Lock-in of 5 years (no premature withdrawal)

How the FD Premature Withdrawal Penalty is Calculated

Banks follow a standard method:

Step 1: Check the Actual Period

Interest is recalculated for the period your FD was active.

Step 2: Apply Applicable Rate

The bank applies the interest rate that was valid for that shorter tenure (not your original rate).

Step 3: Deduct Penalty

Penalty (0.5%–1%) is reduced from the applicable rate.

Example – Premature Withdrawal Calculation

Scenario:

• FD Amount: ₹1,00,000
• Original Tenure: 2 years
• Original Interest Rate: 8.00%
• Closed After: 1 year

Step 1:

Interest rate for 1-year FD at time of booking = 7.50%

Step 2:

The bank applies a penalty of 1%

Final interest rate = 7.50% – 1% = 6.50%

Result:

Instead of 8%, you receive 6.50% for 1 year.

Common Penalty Structure in 2026

Bank Type	Typical Penalty
Public Sector Banks	0.50% – 1%
Private Banks	0.50% – 1%
Small Finance Banks	0.50% – 1%
Special FD Schemes	May have a higher penalty

Penalty may vary depending on:

• Deposit amount
• Tenure
• Special schemes

Always check the bank’s policy.

Important Points to Remember

No Penalty in Some Cases

Some banks do not charge a penalty for:

• Senior citizens (select cases)
• Deposits below a certain amount
• Death of depositor

Tax Saving FD Cannot Be Closed Early

• 5-year lock-in period.
• No premature withdrawal allowed.

Partial Withdrawal

Regular FD usually does not allow partial withdrawal.
Flexi FD may allow partial breakage.

TDS Still Applies

Interest earned (even after penalty) is taxable.

When Does Premature Withdrawal Make Sense?

✔ Medical emergency
✔ Urgent financial need
✔ Better investment opportunity
✔ Interest rates are rising significantly

If interest rates are rising, you may consider closing and reinvesting at a higher rate (calculate carefully before doing this).

How to Avoid an FD Penalty?

• Choose a shorter tenure if unsure.
• Use Flexi FD for liquidity.
• Keep the emergency fund separate.
• Check penalty terms before investing.

How to Close FD Before Maturity (Step-by-Step)

Through Net Banking (24×7)

1. Log in to net banking.
2. Go to Deposits → Close FD.
3. Selectthe FD account.
4. Confirm closure.
5. Amount credited to savings account.

Through the Mobile App

1. Open banking app.
2. Select FD.
3. Choose Premature Closure.
4. Confirm with OTP.

Visit Branch

1. Submit a written request.
2. Provide ID proof (if required).
3. Amount credited to the linked account.

Branch timings may vary by location.

Frequently Asked Questions (FAQs)

Conclusion

FD premature withdrawal penalty in 2026 generally ranges between 0.5% and 1% of the applicable interest rate for the actual tenure completed.

Before closing your FD early, always:

• Check the revised interest rate
• Compare potential gains from reinvestment
• Calculate net benefit after penalty

FDs are best kept till maturity, but if required, premature withdrawals are available at reduced interest rates.