FD Premature Withdrawal Penalty Calculator 2023

Calculators are used to calculate premiums, interest rates and other important aspects related to insurance and investments. Let us take a look at the FD premature withdrawal penalty calculator 2023 for better understanding. 

As the name suggests, the Fixed Deposit or FD Premature Withdrawal Penalty Calculator is basically used to evaluate the penalty that is imposed on an FD investor if the person withdraws the FD account prematurely.

Although, when it comes to safe investment options, FDs are termed as among the most shielded ones available at very low risk and offering guaranteed returns to the investor. However, premature withdrawal of an FD may get you into paying a penalty. So, let us learn about the FD Premature Withdrawal Penalty Calculator and how to calculate FD interest, in this post. But before that let us understand the term premature withdrawal of FD.

What is Premature Withdrawal of FD?

If an FD account holder plans to withdraw the account prematurely, the withdrawal of the investment before completing maturity is called FD premature withdrawal or breaking the FD.

Banks and financial institutions offering FDs allow investors to get premature withdrawal facility. Hence, you can easily withdraw FDs when you need money. However, you must remember that doing so would levy a penalty on the interest amount ranging between 0.5% and 1%.

Difference Between Simple Interest and Compound Interest

Now, since the penalty on FD premature withdrawal is imposed on the FD interest amount, it is subtracted from the booked interest to keep the rate of interest low. This lowered rate of interest is then used to calculate the final maturity amount of the FD and it is calculated in terms of simple interest or compound interest.

Thus, the investor can gain interest on the amount invested based on simple interest. Simple interest is calculated as SI = PTR/100.

Here,

• ‘P’ means principal amount,
• ‘T’ implies tenure, and
• ‘R’ means interest rate (reduced interest rate in this case)

But, in case of compound interest, the investor avails interest on the primary amount of the FD as well as the accrued interest.

In case of FD premature withdrawal penalty, the amount is calculated based on compound interest. The formula for the same is;

A=P (1+r/n) *n*t

Here,

• ‘A’ means final maturity amount,
• ‘P’ means principal amount,
• ‘r’ implies interest rate (reduced),
• ‘t’ means tenure,
• ‘n’ connotes compound interest frequency and
• ‘I’ means interest earned.

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Advantages and Benefits of FD Premature Withdrawal Penalty Calculator 

Here are some advantages of the FD premature withdrawal penalty calculator:

• The calculator helps in evaluating the exact penalty rate as well as the final maturity amount to be received
• Being a mechanical device, there are hardly any chances of human errors in the calculator
• You can easily calculate from the comfort of your home by using the FD maturity calculator and there is no need to visit your bank

How Can FD Premature Withdrawal Penalty Calculator Help?

The FD premature withdrawal penalty calculator helps in numerous ways:

• The calculator helps in estimating the penalty levied for prematurely withdrawing the FD amount. The penalty, however, is imposed on the interest that the bank pays to the investor
• The calculator also offer details on how much penalty is imposed on the investor for withdrawing FD prematurely
• Moreover, it also calculates the interest that is lowered on the withdrawal amount

Thus, by using the calculator, it becomes easy for the depositor to evaluate the penalty amount for a premature withdrawal of fixed deposit. This way, they come to know about the exact penalty that is levied and also know the interest that is lowered. Hence, they can check for the disadvantages (in case any) of withdrawing FD prematurely.

Further, the calculator also helps the investor to analyse the returns to be received at the time of withdrawal. They can also get to know the amount of loss they are about to incur due to the penalty. If the loss they are about to incur due to premature withdrawal is too much, they may keep their FD withdrawal plans on hold.

How Does the Fixed Deposit Premature Withdrawal Penalty Calculator Work?

The calculator is used to evaluate the penalty amount imposed on the investor for premature closure of FD. We already know that the penalty that is levied on the investor is actually imposed on the interest earned on the FD. Hence, the calculator can be used to compare the penalty levied by different banks to help the investor understand the scenario better.

Now, despite the penalty if an investor goes ahead with withdrawing the amount prematurely, the interest rate of the FD is reduced from the rate at which the FD was started or the booked interest rate. However, the bank will not pay any interest to the investor if they prematurely withdraw the money before the minimum period stated under the terms and conditions of the bank.

As far as the bank is concerned, they calculate the withdrawal penalty in two different ways. Let’s check the two ways below, assuming that the penalty or fixed deposit breaking charges levied by the bank is 1%.

Case 1:

Assume that the FD amount is INR 1 lakh, rate of interest is 7% and the tenure of FD is 2 years. 6.5% is the supposed interest rate for 1 year here. Now, the investor withdraws the FD after completion of 1 year. In this case, even if the person has earned an interest rate of 7%, the bank will redo the interest calculation at revised rates with a 1% penalty to be deducted. So, the new rates will be 6.5% – 1% = 5.5%.  Thus, rather than 7%, the investor will be paid the interest at 5.5%.

Case 2:

Assume that the FD amount is INR 1 lakh, rate of interest is 6% and the tenure of FD is 2 years. 7% is the supposed interest rate for 1 year here and penalty levied is 1%. Now, the effective rate of interest is the reduced rate at which the amount was booked or the rate for which the FD was active in the bank.

Now, if the investor withdraws the FD after completion of 1 year. In this case, even if the person has earned an interest rate of 6%, the bank will redo the interest calculation at revised rates with a 1% penalty to be deducted. So, the new rates will be 6% – 1% = 5%.  Thus, rather than 6%, the investor will be paid the interest at 5%.

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To Conclude

Penalty charges on FD for premature withdrawal can be done both online and offline. For online calculations, you just need to enter the required details in the FD calculator tool and you can see the penalty payable displayed by the calculator. However, it is up to your discretion whether to withdraw the FD prematurely or not depending on the loss and if you are ready to bear it.

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