RBI’s rate cut triggers concern for FD investors: Penalty charges for account holders looking to rebook FDs for higher interest income The penalty can range from 0.5% to 1%. Here is a look at the penalty charges of State Bank of India (SBI), HDFC Bank, ICICI Bank, Punjab National Bank (PNB), Canara Bank, Bank of India, and YES Bank for premature withdrawal of FD
Following the Reserve Bank of India (RBI)’s recent repo rate cut from 6.50% to 6.25%, it is anticipated that banks will adjust their fixed deposit (FD) interest rates downward. This could impact FD investors, prompting many to contemplate withdrawing their existing FDs early and reinvesting in longer-term deposits at current higher rates before banks implement rate cuts.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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However, investors should be mindful that banks impose penalty charges on premature withdrawals, which may diminish the effective returns. These penalties may only be waived under certain conditions, such as reinvestment in a longer-tenure FD with the same bank, subject to the bank’s policies. Therefore, before making any decision, FD account holders should thoroughly evaluate the penalty structure and potential interest rate changes with their bank.
Premature withdrawal is a key feature of FDs that increases their appeal by offering liquidity to investors. In times of financial uncertainty or unexpected emergencies, FDs provide the flexibility to access funds before maturity, making them a preferred investment choice for many.
Also read: Last window for FD investors to book FDs at higher rate has officially started as RBI cuts repo rate after a 5 years gap
Premature withdrawal refers to the act of withdrawal of a fixed deposit or other term deposit prior to its maturity date.
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Different banks impose different penalty charges, and it typically involves a reduction in interest rate. The penalty can range from 0.5% to 1%. Here is a look at the penalty charges of State Bank of India (SBI), HDFC Bank, ICICI Bank, Punjab National Bank (PNB), Canara Bank, Bank of India, and YES Bank for premature withdrawal of FD. (Information as per banks’ websites as on February 17, 2025)
SBI penalty on FD premature withdrawal
The SBI website states, “For term deposits up to Rs 5 lakh, the penalty for premature withdrawal will be 0.50% (all tenures). For term deposits above Rs 5 lakh, a penalty of 1% will apply to all tenures. The interest will be 0.50% or 1% below the rate applicable at the time of deposit for the duration the deposit is held with the bank or 0.50% or 1% below the contracted rate, whichever is lower.”
Also read: Good news for SBI home loan borrowers: EMIs to fall as the bank reduces the lending rates
HDFC Bank penalty on FD premature withdrawal
If you withdraw your HDFC Bank FD before maturity, the bank will pay interest that is 1% lower than the applicable rate for the duration the deposit was held. The HDFC Bank website indicates that, with effect from July 22, 2023, the interest rate for premature withdrawal, including sweep-in and partial withdrawal, will be 1% lower (with applicable penalties) than the rate on the date of deposit was made, based on the duration the deposit remained with the bank, rather than the contracted rate.
Punjab National Bank penalty on FD premature withdrawal
PNB’s website says premature cancellation/part withdrawal of domestic term deposits will result in a 1% penalty interest charge for all tenures. The interest rate payable will be the contractual rate minus 1%, or the rate under the scheme on the contractual date for the tenures the deposit actually runs, minus 1%, whichever is lower.”
But, note that no penalty will be levied if the deposit is prematurely closed for the purpose of investment to any other term deposit scheme of PNB, provided that the deposit remains with the bank after the re-investment for a period longer than the remaining period of the original contract, as per the PNB website.
If there is a joint mandate from the joint depositors, the surviving depositor can withdraw term or PNB fixed deposits early without obtaining the consent of the deceased joint deposit holder's legal heirs for term deposits with "Either or Survivor" or "Former or Survivor" mandates. In these situations, there won't be any penalties for early withdrawal.
ICICI Bank penalty on FD premature withdrawal
According to ICICI Bank’s website, “Penalty rates are levied based on the actual tenure of the deposit (fund held with the bank). For deposits under Rs 5 crore, the penalty is 0.50% for withdrawals made before 1 year, 1.00% for withdrawals between 1 and 5 years, and 1-1.5% for withdrawals after 5 years.”Canara Bank penalty on FD premature withdrawal
A penalty of 1% will be charged for premature closure/part withdrawal/premature extension of domestic/NRO term deposits of less than Rs 3 crore accepted/renewed on or after March 12, 2019.“For premature closure/part withdrawal/premature extension of domestic/NRO term deposits, the bank imposes a penalty of 1%. Such prematurely closed/part withdrawn/prematurely extended deposits will earn interest at 1% below the rate as applicable for the relevant amount slab as ruling on the date of deposit and as applicable for the period run or 1% below the rate at which the deposit has been accepted, whichever is lower.”
However, no interest will be payable on term deposits prematurely closed/prematurely extended before completion of the 7th day.
YES Bank penalty on FD premature withdrawal
A penalty of 0.75% on the applicable interest rate will be imposed if the FD is closed before 181 days. If you close after 182 days or more, a penalty of 1% will apply.Bank of India penalty on FD premature withdrawal
Deposits of less than Rs 5 lakh can be withdrawn without charge after the completion of 12 months. For deposits below Rs 5 lakh that are withdrawn prematurely before the completion of 12 months, a penal charge of 0.5% will apply. The penalty for premature withdrawal of deposits amounting to Rs 5 lakh and above is 1%.However, in case of the deposits that have been prematurely closed for renewal for a longer period than the remaining period of the original contract tenure, there will be “no penalty,” irrespective of the amount of the deposit, according to Bank of India’s website. There is also no penalty for the premature withdrawal of term deposits due to the death of the depositor/s.
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This story originally appeared on: India Times - Author:Faqs of Insurances
