A fixed deposit account is one of the most sought-after investment avenues because it offers good returns without any associated risks.
However, they are ‘fixed’ and come with a maturity date only after which one can withdraw the funds. Any withdrawals made before this maturity period are liable for penalties.
So, what can you do when you want to withdraw money before the maturity period ends? Can you avoid the penalty on your premature FD withdrawal? Well, yes, you can. Here are three things to do to avoid penalties for fixed deposit premature withdrawals.
Sweep-in Facility
This unique service combines the best of both savings and fixed deposit accounts into one facility. You can earn interest on your deposit amount while enjoying high liquidity.
With a sweep-in facility, all you need to do is specify a minimum balance to maintain in your savings account. The excess is transferred to a fixed deposit account so that you can earn interest on it.
And it works both ways. Let’s say you issue a check of Rs. 10,000/-, but your savings account has only Rs. 7,000/-. So now, to honor that check, your financial institution will take the rest of Rs. 3,000/- from your fixed deposit account.
This way, your funds aren’t blocked until the expiration of a maturity period, and you don’t have to pay any penalty either.
Take a Loan Against The FD
Another way to avoid a penalty on a premature withdrawal from an FD is by taking a loan against it. You can pledge your fixed deposit as collateral and get a loan issued against it. This ensures that you don’t lose out on the interest you earn on the fixed deposit account.
This is a great option if the funds you require are less than the amount in the fixed deposit account. Let’s assume you need Rs. 2 lakhs, and your fixed deposit account has Rs. 5 lakhs. Instead of withdrawing Rs. 2 lakhs from it, paying the penalty, and preceding the interest, you could simply take a loan against it. This way, your needs are met, and the interest you earn is also retained.
Fixed Deposit Laddering
Want to withdraw funds at fixed amounts of time? Try FD laddering. Here you divide your investment amount into multiple fixed deposit accounts, each having a different maturity period.
For instance, you have Rs. 4 lakhs that you want to put into an FD. Instead of putting the entire four lakhs into one fixed deposit account, you can break it down into four fixed deposits with Rs. 1 lakh each. One could mature in 6 months, the other in a year, and so on. This means you get liquid returns at different time points.
Moreover, say you need to withdraw Rs. 2 lakhs urgently. Instead of paying the penalty of Rs. 4 lakhs, which you would have to pay if you had only one fixed deposit account, now you only pay it Rs. 2 lakhs. The remaining two FDs remain safe and continue to earn interest.
This option increases the liquidity of your funds and reduces the penalty for premature withdrawal considerably.
To Sum Up
Not being able to access your hard-earned money without paying the penalty can be frustrating. So, opt for one of the above facilities before getting your FD. This way, you don’t need to worry about penalties for premature withdrawals.
