He withdraws the FD after completing 1 year. The effective rate of interest is the lower of the rates at which the amount was booked and the rate for the tenure that the FD has remained in the bank.
Let us also assume that the interest rate for 1 year at the time of booking is 7% and the penalty rate for premature withdrawal is 1% of the effective rate of interest. Suppose a customer has invested in an FD of Rs. Interest Rate on One-year FD (at the time of booking an FD)Īmount Receivable on Premature Withdrawalīook SBM Bank FD & Get Lifetime FREE Step UP Credit Card The new rate will be 5.5% and interest shall be paid at this rate instead of the previous 7%. But now, the bank shall recalculate the interest at revised FD rates, i.e. Let us also assume that the interest rate for 1 year is 6.5%.
Suppose a bank charges 1% penalty on premature withdrawals, so the calculation of the interest on premature withdrawal of the FD will be done as per the following illustration. Most banks follow one of the two methods for penalty calculation as mentioned below: However, the calculation for the penalty may vary from one bank to another. A penalty is levied on the interest to be paid to the depositor.