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Have you thought – what will happen if you close your FD prematurely? Will you get the same returns as shown on your Fixed Deposit? No, Banks charge a penalty if you close your FD prematurely. Today, we will have a look at the penalty imposed by banks on the premature closure of an FD. In this article, we will have a look at the rules of SBI.
According to SBI, customers are allowed to close their fixed deposit accounts before maturity. However, a penalty will be charged based on the deposit amount. For term deposits up to ₹5 lakh, SBI will charge a penalty of 0.50% across all maturity periods. For term deposits above ₹5 lakh, the penalty will be 1%, regardless of the deposit tenure.
The interest will be paid at a rate that is 0.50% or 1% lower than the applicable FD rate at the time of deposit, or lower than the contracted rate, whichever is less. Moreover, no interest will be paid if the deposit is closed within 7 days of opening the FD.
This means that if you close your fixed deposit before maturity, you will have to pay a penalty of 0.50% or 1% on the interest. While this rate may look small, the actual loss becomes quite large when the deposit amount is high. If you prematurely close an FD of ₹5 lakh or more, the impact on your earnings can be significant.
Case 1: FD Below ₹5 Lakh
Principal Amount: ₹3,00,000
Original Interest Rate: 7%
FD Tenure: 2 Years
FD Closed After: 1 Year
Applicable Penalty: 0.50%
Effective Interest Rate After Penalty: 6.50%
Interest Earned: ₹19,500
Total Amount Received: ₹3,19,500
Loss Due to Penalty: ₹1,500
Case 2: FD Above ₹5 Lakh
Principal Amount: ₹10,00,000
Original Interest Rate: 7%
FD Tenure: 3 Years
FD Closed After: 1 Year
Applicable Penalty: 1%
Effective Interest Rate After Penalty: 6%
Interest Earned: ₹60,000
Total Amount Received: ₹10,60,000
Loss Due to Penalty: ₹10,000
Case 3: FD Closed Within 7 Days
Principal Amount: ₹1,00,000
Original Interest Rate: 7%
FD Closed After: 5 Days
Applicable Penalty: Not Applicable
Effective Interest Rate: 0%
Interest Earned: ₹0
Total Amount Received: ₹1,00,000
Loss Due to Penalty: Full interest amount (No interest paid)
