Home Finance How Can You Avoid Premature Withdrawal Penalty on Fixed Deposit?

How Can You Avoid Premature Withdrawal Penalty on Fixed Deposit?


There is no way to opt for a premature withdrawal of a fixed deposit without attracting some penalty. To avoid landing in such a mess, you need to adopt some smart moves while investing in fixed deposit schemes. This article lists three basic approaches that you need to take while planning to buy a fixed deposit scheme. These approaches not only help in safeguarding your hard-earned wealth but also serves as a medium for you to earn the best FD interest rates.  

Fixed Deposit Laddering

Fixed Deposit Laddering is a strategy that involves purchasing several fixed deposits maturing at different periods. This technique helps you manage liquidity efficiently. You just need to divide your one singular investment into multiple small investments. Instead of investing five lakh rupees in one fixed deposit scheme, you can divide it into five smaller fixed deposits and let them mature over different periods. Thus, you have five fixed deposits maturing at different points in time. Apart from making room for you to earn the best FD interest rates, it also provides sufficient liquidity. So, you can go for premature withdrawal, where you can withdraw just the amount of cash needed.

  • Provision for Sweep-in

The sweep-in provision lets your bank transfer any amount from your savings account to a sweep-in deposit. In this process, the amount transferred by your bank may exceed the amount fixed by you. The sweep-in option is also known as the flexi deposit. The tenure of the fixed deposit can range from one year and can go up to ten years. The interest rates also differ accordingly. However, the money transferred can open doors to earning the best FD interest rates

  • Eligibility Criteria for a Sweep-in Account

You need to open a fixed deposit of a minimum of twenty-five thousand rupees with your bank. Apart from providing the best FD interest rates, a sweep-in provision forms a distinct corpus that can be used for withdrawal in an emergency. This facility enables withdrawal without affecting your regular fixed deposit investments. You do not have to pay a fee or suffer a penalty on the withdrawal. If you need to withdraw cash from the fixed deposit urgently, the balance amount will keep earning the same interest rate. 

  • Availing Loan Against Fixed Deposit

Financial institutions allow their investors to take a loan against their fixed deposits. The interest rate for a loan on a fixed deposit is usually one to two percent more than the interest paid for the deposit. However, the rate of interest differs from one bank to the other. For example, a particular financial institution may charge interest daily in terms of a decreasing balance instead of levying any asking for processing fees or imposing prepayment penalties. 


To sum it up, you can always consider these strategies if you invest your money in a fixed deposit scheme. These ways will help you secure your money in the long run. Financial emergencies can come up at any moment. But the proper implementation of these approaches can allow you to withdraw your money in times of need without any hassle.