Premature FD withdrawal simply means closing a fixed deposit before its maturity date. You do get your money back, but the interest is recalculated at a lower rate. So the return ends up smaller than what you had in mind when you opened the deposit.
Why Investors Break an FD
Life doesn't always follow the plan. A medical emergency, a college fee that comes due earlier than expected, or some other urgent need can push people to close a deposit early. SIDBI recognises some of these reasons specifically, and we'll get to them below.
Can You Break a SIDBI FD Before Maturity
1. Withdrawal Before 12 Months
In the first 12 months from the date of deposit, you can't just close the FD whenever you like. Premature withdrawal is allowed only in specific cases: death of the depositor, medical exigencies, educational expenses, and other reasons that SIDBI finds acceptable.
2. Withdrawal After 12 Months
Once the deposit has completed 12 months, premature withdrawal is permitted. The interest is recalculated as per the policy explained in the next section.
3. Non-Individual Deposits
If the deposit is held by a non-individual, such as a company or a firm, premature withdrawal is not permitted before 12 months from the date of deposit.
SIDBI Premature Withdrawal Interest Rates
Interest Rate by Period Completed
What you earn depends on how long the deposit has run before you close it.
| Premature withdrawal | Interest payable |
|---|---|
| Before 6 months | No interest |
| Between 6 months and 1 year | Not exceeding the Savings Bank rate of scheduled commercial banks, or the rate specified by RBI |
| After 1 year | 1% less than the rate prevailing on the date of deposit for the period the deposit has run |
Illustrative Example
Say you made a 36-month deposit at 6.55% p.a. and decided to withdraw after 18 months. The rate for the period you actually completed (14 to 24 months) is 6.50% p.a. SIDBI's policy then takes off 1%, which leaves you with 5.50% p.a. on the deposit. The rates here are only for illustration and are based on the current rate table, so your actual figures may differ.
How Interest Is Recalculated
1. Cumulative Deposits
In a cumulative deposit, the interest stays with the deposit until maturity. If you break it early, the maturity amount is worked out again at the revised interest rate, and you are paid that revised maturity value.
2. Non-Cumulative Deposits
In a non-cumulative deposit, you receive interest at regular intervals. If you close it early, SIDBI compares the interest already paid with the interest payable at the revised rate. The difference is recovered from your original deposit, and the balance is paid to you.
3. TDS on Premature Withdrawal
If TDS has already been deducted and paid, it is not recalculated when you withdraw early.
Tips Before Breaking an FD
1. Check the Period Completed
Your interest rate hinges on how long the deposit has run, so the first thing to check is where you stand. Are you before 6 months, between 6 and 12 months, or past 1 year? The difference in what you receive can be big.
2. Weigh the Cost Against the Need
Work out how much interest you'll lose and set it against how urgent the requirement really is. If the need is genuine, breaking the FD may well be the right call. If it can wait a little, you might save yourself a decent amount.
3. Plan Access Through Laddering
One way to avoid this situation in the first place is to split your money across different tenures. With deposits maturing at regular intervals, you have funds coming in without having to touch an FD midway. Our FD Laddering blog explains how this works. It also helps to read up on FD Maturity and common FD mistakes before you invest, and to check SIDBI Fixed Deposit Eligibility if you aren't sure you qualify.
Conclusion
You can break an FD, but you'll earn less interest than you planned, and withdrawals before 12 months are allowed only for specified reasons. Before you go ahead, check how long the deposit has run and compare the cost with your need. If you can manage without it, letting the FD reach maturity is usually the better option.
Frequently Asked Questions
1. Can I break a SIDBI FD before maturity?
Yes. Before 12 months it is allowed only for specified reasons, such as death of the depositor, medical exigencies or educational expenses. After 12 months, premature withdrawal is permitted, but at a reduced interest rate.
2. Is there a penalty for premature FD withdrawal?
SIDBI's policy reduces the interest rate payable. Apart from recovery of excess brokerage on deposits received through brokers, no separate fee is listed.
3. Will I get interest if I withdraw before 6 months?
No. If you withdraw before 6 months, no interest is paid.
4. Can a nominee withdraw an FD prematurely?
No. Premature withdrawal by the nominee(s) is not permitted.
5. Is TDS recalculated on premature withdrawal?
No. TDS that has already been deducted and paid is not recalculated.
