Can You Partially Withdraw Or Break Fixed Deposit?
Breaking a fixed deposit means premature withdrawal of the amount to meet liquidity needs in case of exigencies and unforeseen situations. The facility of premature withdrawals is available but not advisable due to loss of returns. It is imperative that you have a separate portfolio in liquid instruments that you can use in case of emergencies. Yet, in case this route needs to be taken, as an investor, you should be aware of the pros and cons.
How does premature withdrawal affect returns?
Let us understand the effect of premature withdrawal on your fixed deposit. Imagine you had invested a sum of Rs. 10 lakh with a tenor of 48 months, with a high-interest rate. Now, this interest rate is applicable and set for 48 months. But, due to an emergency, you need to withdraw the fixed deposit after 12 months. The interest calculation will be done at the rate of interest existing on a one-year fixed deposit when you first opened the fixed deposit. Thus, your interest component changes significantly, and you will lose out on a significant amount of money that you could have earned.
The completion of the complete 48 months tenor would have fetched you Rs. 13.6 lakh. But, this premature withdraw in a year’s time will earn you only Rs. 10.7 lakh.
While this loss of interest is hard enough for an investor, you may also end up paying a significant amount as a penalty for premature withdrawal, depending upon your provider. These penalties can range from 0.55% to even 1% of the fixed deposit interest. Thus, doing this cost-benefit analysis is important before going for a premature withdrawal.
You can always search and compare the most flexible lender in terms of the premature withdrawal penalty. Bajaj Finance considers premature withdrawal a necessity in utmost need and charges a low premature withdrawal fee along with high rates of interest.
How can you break a fixed deposit?
You can log in to your net banking website or via Experia- your online fixed deposit account (facility available to Bajaj Finance FD customers only). Since you can now create fixed deposits online, many institutions provide an online facility to withdraw FD prematurely. The paperwork trail has been removed to a large extent in this process. In an online or offline process, if the paperwork like PAN card, KYC are updated with the institution, there will not be any hassles with premature withdrawal.
Averting Premature Withdrawal
To avoid such a situation, you can create fixed deposits with a shorter tenor. The advantages will accumulate in various aspects. You can fight inflation with shorter tenors and achieve higher returns. Investing in multiple fixed deposits will create benefits of laddering with successive maturity time periods. You can be assured of liquidity each month by these multiple fixed deposits.
You can also achieve liquidity by taking a loan against fixed deposit with lower interest rates. You will not have to worry about emergency cash availability, and your fixed deposit investments can stay intact with a high interest rate.
Always look for highly rated company fixed deposits like Bajaj Finance FD which is credited for its safety and stability by ICRA’s MAAA (stable) rating and CRISIL’s FAAA/Stable rating, so your investments are never at risk.