- \n
- You can withdraw FD money after 7 days (per RBI guidelines), but premature withdrawal attracts penalty interest deductions of 0.5\u20131% depending on the bank.<\/li>\n
- Full maturity withdrawals are tax-free on principal; only interest earned is taxed per your income tax slab.<\/li>\n
- Banks calculate interest on a quarterly, half-yearly, or annual basis\u2014check your FD terms before withdrawing.<\/li>\n
- Partial withdrawal is allowed on most FDs after 12 months, though rules vary by bank and FD type.<\/li>\n
- Tax-saving FDs (5-year lock-in) have stricter withdrawal rules and higher penalties for early exit.<\/li>\n<\/ul>\n
\n![\"fixed](\"https:\/\/jupiter.money\/blog\/wp-content\/uploads\/2026\/10\/fixed-deposit-withdrawal-rules-premature-exit_in.png\")
<\/figure>\nWhat Are Fixed Deposit Withdrawal Rules?<\/h2>\n
A fixed deposit is a lump-sum investment held by a bank for a fixed period (7 days to 10 years) at a guaranteed interest rate. Once you invest, the bank locks your money until maturity. However, the RBI does allow early withdrawal\u2014but with conditions and penalties.<\/p>\n
Per RBI’s Deposit Insurance and Credit Guarantee Corporation (DICGC) framework and individual bank policies, you can withdraw:<\/p>\n
- \n
- After 7 days<\/strong>: Minimum holding period; penalty applies.<\/li>\n
- After 12 months<\/strong>: Partial withdrawal becomes available on some FDs.<\/li>\n
- At maturity<\/strong>: Full withdrawal without penalty; only accrued interest is taxed.<\/li>\n<\/ul>\n
\nHow Do Premature Withdrawal Penalties Work?<\/h2>\n
When you withdraw before maturity, the bank deducts a penalty from your earned interest. This penalty varies by bank and tenure:<\/p>\n
\n\n
\n \nWithdrawal Timing<\/th>\n Penalty (approx.)<\/th>\n Interest Impact<\/th>\n<\/tr>\n<\/thead>\n \n Within 7 days to 3 months<\/td>\n 1% of interest or principal<\/td>\n Significant loss<\/td>\n<\/tr>\n \n 3 months to 6 months<\/td>\n 0.75\u20131% of interest<\/td>\n Moderate reduction<\/td>\n<\/tr>\n \n 6 months to maturity<\/td>\n 0.5\u20130.75% of interest<\/td>\n Minimal loss<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Example<\/strong>: You invest \u20b91,00,000 in a 2-year FD at 6.5% p.a. After 8 months, you need the money. Your earned interest is \u20b94,333. The bank applies a 1% penalty = \u20b94,333 \u00d7 1% = \u20b943. You receive \u20b91,00,000 + \u20b94,290.<\/p>\n
Always check your bank’s FD terms sheet\u2014some banks waive penalties after 1 year, while others maintain strict schedules.<\/p>\n
\nCan You Partially Withdraw from an FD?<\/h2>\n
Partial withdrawal (also called part-withdrawal) lets you access a portion of your FD before maturity without closing the entire account.<\/p>\n
Eligibility<\/strong>:
\n– Available after 12 months on most FDs
\n– Withdrawal limit: typically 50% of the FD amount or accrued interest (whichever is lower)
\n– Remaining FD continues to earn interest<\/p>\nAdvantages<\/strong>:
\n– Retain a portion of your FD’s compounding benefit
\n– Lower penalties because the remaining amount keeps accruing interest
\n– Useful for emergency access without full liquidation<\/p>\nExample<\/strong>: \u20b92,00,000 FD at 7% for 3 years. After 18 months, you withdraw \u20b950,000 (part-withdrawal). The remaining \u20b91,50,000 continues earning interest until maturity.<\/p>\n
Not all banks offer this\u2014check with your institution.<\/p>\n
\nTax on Fixed Deposit Withdrawals<\/h2>\n
Understanding tax treatment is crucial, as it affects your real returns:<\/p>\n
Interest Tax (TDS)<\/h3>\n
Banks automatically deduct Tax Deducted at Source (TDS) at 10% if your annual FD interest exceeds \u20b940,000 (for individuals, per Income Tax Act Section 194A).<\/p>\n
Key points<\/strong>:
\n– TDS is deducted at withdrawal or maturity, whichever comes first.
\n– You can avoid TDS by submitting Form 15G (if total income <\u20b95,00,000) or Form 15H (senior citizen).
\n– TDS is adjusted in your annual ITR filing; excess tax is refunded.<\/p>\nInterest Is Fully Taxable<\/h3>\n
Unlike principal (which is not taxable), all interest earned is added to your taxable income<\/strong> and taxed per your income tax slab.<\/p>\n
Example<\/strong>: Salaried person earning \u20b925 lakh\/year in the 30% tax bracket. FD interest of \u20b950,000 is taxed at 30% = \u20b915,000 tax liability (plus applicable surcharge and cess).<\/p>\n
Premature Withdrawal Tax Impact<\/h3>\n
When you withdraw early:
\n1. Interest earned to date is taxable<\/strong> (only partial interest if you haven’t held for the full term).
\n2. Penalty deduction is not tax-deductible<\/strong> (you lose it but can’t claim it as a deduction).
\n3. TDS is calculated on the interest received<\/strong> (after penalty).<\/p>\n
\nHow Interest Is Calculated on Early Withdrawal<\/h2>\n
This varies significantly by bank and maturity period:<\/p>\n
Quarterly Compounding (Common)<\/h3>\n
Interest is credited quarterly; upon early withdrawal, you receive interest up to the last completed quarter.<\/p>\n
Example<\/strong>: \u20b91,00,000 FD at 6% p.a., quarterly compounding. You withdraw after 5 months (1 full quarter + 1 month).
\n– Interest for Q1 (3 months) is credited: \u20b91,500
\n– Interest for months 4\u20135 is forfeited<\/strong> (not earned).
\n– You receive \u20b91,00,000 + \u20b91,500, minus penalty.<\/p>\nSome Banks: Simple Interest on Early Withdrawal<\/h3>\n
A few banks calculate simple interest (not compounded) for the period held when you exit early. This reduces your return further compared to the FD’s advertised rate.<\/p>\n
Always confirm interest calculation terms before investing.<\/strong><\/p>\n
\nSpecial Withdrawal Rules for Specific FDs<\/h2>\n
Tax-Saving FDs (5-Year Lock-in)<\/h3>\n
- After 12 months<\/strong>: Partial withdrawal becomes available on some FDs.<\/li>\n
- After 7 days<\/strong>: Minimum holding period; penalty applies.<\/li>\n