Breaking a Fixed Deposit

Breaking a FD means pre-mature withdrawal of your money locked in a FD i.e. taking out the money before the term of the FD is over.When you break a FD, banks don’t give you the rate of interest at which you booked the FD ; instead you get the rate applicable for the duration for which you actually kept the money with the bank.For example if you made a FD for 4 years, at an interest rate of 8% and now you wish to break it after 2 years ,you would get the rate applicable to a 2 year FD prevailing at the time when you had booked your FD, and not the 8% which is noted in your FD certificate.So, if the rate for a 2 years FD was 7.25% when you had booked your 4 year FD, you would only get an interest of 7.25% per annum for the 2 years you would have actually kept the money with the bank.In addition there is often a penalty to be paid,comm0nly a further 1% deduction.Some banks do waive off this penalty if the liquidation or premature withdrawal of the FD is due to some emergency. But the word “emergency” is not well defined and this waiver is given on a case-to-case basis.Some banks also waive off the penalty if you reinvest the withdrawn amount with the bank. Some banks provide this waive off only if the new FD is kept for a period higher than the remaining period of the original FD.So there is some leeway to negotiate to avoid paying a penalty while attempting to break a fixed deposit. Read more of this post