What happens when you withdraw fixed deposit before maturity?

What happens when you withdraw fixed deposit before maturity?

19 January 2024 | By INDIE

Financial planning often involves exploring various investment avenues that suit your investment objectives, and one such tried-and-tested option is the fixed deposit (FD). Fixed deposits are a popular choice among investors for their assured returns and stability. However, what happens when circumstances compel you to withdraw funds before your FD matures? This article dives into the various aspects of premature withdrawals from fixed deposits and provides some valuable insights into early withdrawals.

Understanding FD tenures and premature withdrawals

A fixed deposit tenure signifies the duration for which an investor agrees to lock in their funds. The interest is calculated on the funds either monthly, quarterly, or annually, and paid at the time of maturity along with the principal amount. 

In case you withdraw funds before the FD matures, it is called as a premature withdrawal and banks may impose a penalty or offer reduced FD interest rates depending on their specific terms and conditions. Some banks also allow premature withdrawals as per their regulations.  

What are the consequences of early withdrawals in an FD?

1. Fixed deposit interest rates and earnings: Opting for a premature withdrawal often leads to a reduction in the interest earned. Financial institutions typically offer lower interest rates on prematurely withdrawn fixed deposits, denting the overall earnings from the investment.

2. FD penalty: Breaking the agreed FD lock-in period attracts penalties. The penalty for early withdrawal varies among financial institutions but is typically deducted from the interest earned or the principal amount. 

3. Impact on tax-saving FDs: Tax-saving FDs usually come with a lock-in period of five years. Withdrawing funds before this tenure not only incurs penalties for breaking tax saver FDs but also results in the forfeiture of the tax benefits associated with the investment. It's crucial to assess your financial needs and commitments and consider these penalties before breaking such FDs. 

4. Loss of compounded interest: One of the key advantages of fixed deposits is the compounding of interest. Premature withdrawal disrupts this compounding process, resulting in a loss of potential earnings. Investors may find themselves falling short of the anticipated returns when they prematurely withdraw term deposits. 

5. Impact on financial goals: Individuals often invest in fixed deposits with specific financial goals in mind. Premature withdrawals can derail these plans, leading to a shortfall in funds when they are needed. Investors need to align their fixed deposit tenures with their financial objectives to avoid compromising on their goals.

How should you ideally maintain a fixed deposit?

1. Choose an FD that is aligned with your financial goals: Before investing, define your financial goals and choose a fixed deposit tenure that aligns with these goals. You can consider the IndusInd Bank INDIE fixed deposits that come with extended tenures and can begin with small amounts of just ₹1000. This can ensure that your investment serves its intended purpose without the need for a premature withdrawal.

2. Understand the lock-in period: Have a clear understanding of the lock-in period associated with your fixed deposit. Be aware of the early withdrawal penalties of the FD to make an informed decision.

3. Regularly review financial plans: Periodically review your financial plans and assess whether they align with your current circumstances. Adjustments may be necessary, and early communication with your bank can provide alternatives to a premature withdrawal.


Withdrawing fixed deposits prematurely can bring undesired outcomes, especially if your bank does not provide a premature withdrawal facility. The consequences can range from diminished interest earnings to penalties which can impact your financial goals. To truly harness the benefits of fixed deposits, you must tread with caution and draft an investment plan based on your financial standings. 

If you are looking for higher fixed deposit interest rates, opt for the IndusInd Bank INDIE app to open a fixed deposit account where you can start your FD journey with just ₹1,000. With attractive interest rates of up to 7.5% per annum and flexible tenures, you can manage your FD investments through the INDIE mobile app. The account opening process is seamless and quick with zero paperwork. Download the INDIE app now and start your investments right away!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.