Some banks, including HDFC Bank, have decided to impose a penalty of 1% for all premature withdrawals from fixed deposits
To discourage premature withdrawal of money from fixed deposit accounts, banks have decided to impose a penalty on such transactions to minimise any impact on their liquidity position at a time when rising interest rates are pushing up the cost of funds for them.
RBI has left it to banks to decide whether they want to impose any penalty on premature closure of fixed deposits.
As such, the customers are given a return lower than the promised interest rate in case of early withdrawals.
Although some of the public sector banks have already in place a mechanism to impose a penalty on premature withdrawal of money from FDs, a number of others, mostly private sector banks, have not been charging any such penalty in their attempts to lure more customers.
However, the continuous rise in interest rates over recent months have pushed the cost of funds much higher for the banks and premature withdrawal from deposit accounts has put unnecessary pressure on the banks' liquidity position, a senior private sector banker said.
Earlier, the banks used to give only the interest rate applicable to the period for which the deposits have been maintained in case of premature withdrawals and not the full return promised at the time of booking the FDs.
In such a scenario, some banks, including private sector bank HDFC Bank, have decided to impose a penalty of 1% for all premature withdrawals from fixed deposits.
With effect from 24th January, HDFC Bank has decided to impose 1% penalty on premature closures, including for partial withdrawals, it said in a customer circular.
Some others such as IDBI Bank will spare new deposits from the penalty clause to lure more customers, but would impose a fine in case of older deposits.
On its part, IDBI Bank has said it would not charge any penalty for premature withdrawal on its various term deposits opened/renewed with effect from 1st January.
However, in case the customer wants to prematurely withdraw the FDs booked before 1st January, a penalty of 1% would be imposed, IDBI Bank said.
"Interest payable on prematurely withdrawn deposits will be the contracted rate or the rate applicable for which the deposit remained with the Bank, whichever is lower, less 1% penalty," IDBI Bank said.
Some others, including Indian Overseas Bank, do not impose any penalty on premature withdrawals of FDs up to Rs5 lakh, but charge 1% penalty for higher deposits. Karnataka Bank and Dhanlaxmi Bank are also charging 1% penalty on early withdrawals
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