FD Tips: Loss of interest on withdrawing money from FD? Not anymore! Follow this 'smart' trick and get full profit..

It often happens that people withdraw money from their FD before it matures. So if you withdraw money before the maturity of a fixed deposit (FD), banks usually impose a penalty on pre-mature withdrawal, which reduces the interest rate and gives fewer returns. Yes, this penalty affects your earnings from FD, but by adopting some smart methods like FD laddering, loan against FD, or sweep-in facility, you can avoid this loss and take advantage of the full interest.

Rules for withdrawing money from an FD

1. Low interest rate: If banks give interest according to the period for which you kept the money in the FD. So, suppose you had made an FD for 5 years, but withdrew the money in 2 years, then instead of the 5-year interest rate, you will get interest at the rate applicable to a 2-year FD.

2. Penalty: Banks often deduct a penalty of 0.5% to 1% from this interest rate. Also, it depends on the policy of the bank. Yes, some banks also give an exemption from this penalty to senior citizens.

How to withdraw money without loss?

These methods can be adopted to avoid or reduce the loss on withdrawing money from an FD.

1. Loan against FD

Yes, if you need money in an emergency, then instead of breaking the entire FD, you can take a loan against your FD. The interest rate on this loan is 1-2% higher than the interest rate on an FD. This is a cheap and good option because it keeps your FD intact, and you keep getting full interest on it.

2. Sweep-in FD

This type of FD is linked to your savings account. When there is more money in your savings account than the fixed limit, it automatically goes into an FD. So in such a situation, when you need money, this FD automatically breaks and comes into your savings account. In this, money is available immediately when needed, and the entire fund is not harmed; only that much of the FD is broken, which has been withdrawn.

3. Multiple FD

Instead of making a big FD, you can divide your money into different small FDs. Suppose you have to make an FD of ₹ 5 lakh. Then, instead of this, you can make 5 different FDs of ₹ 1 lakh. The advantage of this will be that if you need only ₹ 1 lakh, then you will break only one FD, and the rest of the FDs will continue to get full interest.

4. No-Penalty FD
Yes, some banks and non-banking financial companies (NBFCs) also offer such FDs, in which there is no penalty on premature withdrawal. However, the interest rates in these may be slightly lower.

Let us tell you that the most important thing in this is that before any investment, you should plan your financial goals and liquidity (money requirement). So, always keep an emergency fund separate so that you do not have to break your long-term FD. (Note: This article is for information only and should not be considered as investment advice in any way, suggest consulting financial advisors for investment)

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.