How is the FD premature withdrawal penalty calculated in India?

Banks typically pay interest at the rate applicable for the period the deposit actually remained with the bank (the 'held rate'), minus a premature penalty which is usually 0.5% to 1%.

What is the 'Held Rate' in a Fixed Deposit?

The held rate is the interest rate the bank was offering for the specific duration you actually kept the money, not the original rate promised for the full tenure.

How the FDInsider Engine Works

Our proprietary engine doesn't just "subtract 1%." It reconstructs the entire timeline of your deposit to reveal the true cost of breaking it.

The Mathematical Core

Actual Payout = P × (1 + (r_held - p)/n)^(nt)

Where r_held is the prevailing rate for the duration you actually stayed, and p is the premature penalty.

Illustrative Example

The Scenario: You book a 5-Year FD at 8%. You break it after exactly 1 year.

What you expect

8% interest - 1% penalty = 7%

The Reality (Held Duration)

If the 1-year rate was only 6% when you booked:

6% (Held Rate) - 1% penalty = 5%

This "Held Duration" gap is where most savers lose money. Our calculator is built to catch this specific discrepancy.

Regulatory Sources

Our calculations align with the guidelines set by the Reserve Bank of India (RBI) regarding interest rates on deposits. For official documentation, refer to theRBI Master Circular on Interest Rates on Rupee Deposits.

Transparency Disclosure

While our engine uses standardized compounding norms (Quarterly/Monthly), slight variances may occur based on how individual banks treat leap years and holiday interest accruals. Always consult your bank's latest policy document.