Can we break a 5-year FD?

If you're facing a cash difficulty, breaking your 5-year fixed deposit (FD) might seem like the quickest solution. While premature withdrawal is usually allowed, it often comes with penalties and reduced interest earnings. However, before you break the deposit, check if your chosen financial institution offers a loan against your FD—this can help you access funds without losing out on returns. Also, be aware of any minimum lock-in period, especially for tax-saving FDs, which may restrict early exit. Here's what you need to know:

• Premature Withdrawal Allowed: You can withdraw up to 75% of your FD before maturity, subject to tenure. Loan against deposit is also available during lock-in periods for urgent needs.
• Lower Interest Rates: Early withdrawal reduces interest earnings. The rate is recalculated based on the actual holding period, not the original tenure, which may result in lower returns than initially expected.
• Penalty Charges: Premature FD withdrawals may attract penalties, typically 0.5%–1% lower interest. To avoid this, consider loan against deposit or partial withdrawal options for better flexibility.