FD Withdrawal Rules: How to Liquidate Your FD Before Maturity

Ever needed to break your fixed deposit before time? It happens, an emergency, a business need, or a sudden plan can make you reach for your savings. That’s when you begin to wonder about FD withdrawal rules and how much you actually lose when doing it early.

A fixed deposit, by nature, locks your money for a set period. But if you want to withdraw it before maturity, banks allow it with certain conditions. Knowing these rules helps you avoid unpleasant surprises and make smart choices with your savings.

How FD Withdrawal Works? 

When you open a fixed deposit, your money earns interest for the agreed term, 6 months, 1 year, or more. If you withdraw it early, the bank pays you interest only for the period your money was actually held. On top of that, a small penalty is usually applied.

The fixed deposit withdrawal before maturity process is simple:

• Submit a withdrawal request at your branch or through online banking.
• The bank recalculates the interest at a lower rate based on your holding period.
• It deducts the penalty and transfers the balance to your account.

So, before you break your FD, it’s important to check how much you’ll lose in interest and whether your situation really calls for it.

The Current FD Withdrawal Rules in India

The Reserve Bank of India (RBI) revised the early withdrawal policy to make it easier for small savers. Term deposits up to ₹1 crore, whether held individually or jointly, must include a premature withdrawal facility. Earlier, this limit was only ₹15 lakh.

This means that nearly every small depositor in India now has the right to withdraw before maturity, though with a penalty. Only “non-callable” or special deposits above ₹1 crore remain locked without an early exit option.

Penalties on Premature FD Withdrawal

Banks charge a small penalty for early closure. This deduction is applied to the interest rate applicable for the actual tenure.

Most banks deduct between 0.50% and 1% of the interest rate as a penalty for early withdrawal. The exact amount varies by bank, tenure, and deposit type.

Here’s a quick comparison:

Bank Type	Penalty Range	How It’s Applied
Public Sector Banks	0.50% to 1.0%	On interest rate applicable for the actual tenure
Private Banks	1.0% to 1.5%	Deducted from eligible rate
Small Finance Banks	1.0% to 1.5%	May vary by amount

In some cases, if you withdraw within a few days of booking, the bank may not pay any interest at all. It’s always better to check the fine print before opening an FD.

Types of FDs and Their Withdrawal Terms

Not all fixed deposits work the same way. Some allow instant liquidity, while others don’t.

1. Callable FDs

These deposits allow premature withdrawal. Most retail and senior citizen FDs fall under this category.

2. Non-Callable FDs

These are large deposits that cannot be withdrawn before maturity. The minimum amount threshold for non-callable term deposits was raised to ₹1 crore, meaning almost all small investors are now covered by the callable category.

That change gives savers more flexibility in managing unexpected cash needs.

How to Withdraw a Fixed Deposit Before Maturity? 

The process differs slightly depending on how you opened your FD.

If opened online:

• Log in to your bank’s net banking or mobile app.
• Select the FD and choose “Premature Withdrawal.”
• Confirm the amount and the system will automatically recalculate the payable interest.

If opened at a branch:

• Visit your bank branch with ID proof and the FD receipt.
• Fill out a premature withdrawal form.
• The bank will credit the balance (after penalty) to your account.

Digital withdrawals usually happen instantly, while branch requests may take a day or two to reflect.

Points to Check Before You Break an FD

It’s tempting to liquidate when you need funds quickly, but here’s what you should consider:

• Penalty vs. Need – Compare your penalty loss with your immediate requirement. Sometimes a short-term loan may cost less.
• Tenure Left – If your FD is close to maturity, it might make sense to wait and avoid the penalty.
• Linked Accounts – If your FD is used as collateral for a loan or overdraft, you can’t withdraw it until you clear the dues.
• Taxation – Interest earned till the date of withdrawal is taxable under “Income from Other Sources.”

Planning ahead can save both time and returns.

Alternatives to Breaking an FD

Sometimes, you can access money without closing the FD entirely.

• Partial Withdrawal: Some banks let you withdraw a portion of the amount while keeping the rest invested.
• Loan Against FD: You can borrow up to 90-95% of your deposit value at an interest rate slightly higher than your FD rate.
• Sweep-in Facility: If your savings account is linked to an FD, the bank automatically transfers the required funds from it when your balance runs low.

These options allow flexibility without the penalty hit.

Final Thoughts 

So, when it comes to FD withdrawal rules, most banks allow early withdrawal, but at a cost. For deposits under ₹1 crore, the facility is mandatory, and penalties usually stay between 0.50% and 1%. For large or non-callable deposits, withdrawal isn’t allowed at all.

Before you act, calculate the loss, check the remaining tenure, and see if partial withdrawal or an FD loan fits better. Always choose flexibility when you invest next time.If you’re planning or reviewing your savings, Trend Reversal helps you compare options and understand how each investment behaves, including fixed deposit withdrawal before maturity, so your money always works with your goals.