Today, I pre-closed my 6 months old Quarterly Interest paying Fixed Deposit and instead opened a new but similar Quarterly Fixed Deposit without paying any Premature withdrawal Penalty or without losing even a single rupee of Interest. How? Read on.

## About my Previous Fixed Deposit

On 27th June, 2022 I had opened a Fixed Deposit (Joint account with a non-senior citizen) with the parameters as following:

**Deposit Amount:** ₹20,000**Contracted Interest Rate:** 5.35%**Interest Frequency: **Quarterly (Paid to account)**Deposit Period:** 7 years 9 months (93 Months or 31 quarters – This is important)**Maturity Date:** 27-March-2030**Interest Amount: **₹268 (Paid to account on quarterly basis)**Total Interest: **₹8308 (268 * 31)

The details of the same can be seen below.

## Before going for Renewal

When I visited the bank, I saw that the interest rates had increased from the time I opened my Fixed Deposit. When enquired about renewing my old FD account to new higher interest rates, I got conflicting views from the Bank authorities. While one said that penalty will be charged on premature closure, other said no penalty may get charged under certain specific condition. When I asked how much the exact renewal or penalty amount will be, they said that they weren’t sure and there is no way to know.

I have previously renewed my other Fixed Deposits with Cumulative Interest option and in those cases, Penalty was indeed charged (but it may vary from bank to bank).

Now, I wanted to keep my maturity date of new FD to be same as that of original FD, which meant my previous Fixed Deposit had run for a duration of 6 months and 1 day and thus, the new Fixed Deposit will have to be opened for a period of 7 years and 3 months (87 months or 29 quarters).

The penalty, I was told, was 1% and is levied on the FD interest which is calculated at the rate applicable for the period for which the deposit was held with the Bank **or **contracted rate of the deposit whichever is lower. I know it sounds confusing. My YouTube video (Coming Soon!!!), I hope should be able to explain this better.

Now, since Every Paisa Matters, I thought of using my FD Premature Withdrawal Penalty and Renewal Calculator for Non-Cumulative deposits to check how much will I be able to save. I charted out 4 different options:

- Renewal under new higher interest rates
**with**penalty applicable on contracted interest rate - Renewal under new higher interest rates
**with**penalty applicable on rate applicable for period of deposit - Renewal under new higher interest rates
**without**penalty applicable on contracted interest rate - Renewal under new higher interest rates
**without**penalty applicable on rate applicable for period of deposit

Below, I have listed the results that I got using my excel calculator.

### CASE 1: Renewal under new higher interest rates **with **penalty applicable on contracted interest rate

**Deposit Amount:** ₹20,000**Contracted Interest Rate:** 5.35%**Penalty: **1%**Revised Interest Rate:** 6.00%**Interest Frequency: **Quarterly (Paid to account)**Deposit Period:** 7 years 3 months (87 Months or 29 quarters)**Maturity Date:** 28-March-2030

A very important thing to note is that since the penalty is being charged, hence the overall interest paid for this duration (6 month period) comes down to ₹437 as against the original ₹538. Since the bank would have already paid the interest, they will claim this extra amount by reducing the principal and hence you can see that the Principal in the Revised FD comes to be as ₹19,899 and not ₹20,000.

As shown in the picture below, in this case the calculated new quarterly interest amount comes out to be ₹298 and overall, I would have got an **extra ₹786** as interest (all by visiting a bank). Who doesn’t like Free Money!!! Let us now look at the next scenario and see whether it’s any better.

[mailpoet_form id=”4″]

### CASE 2: Renewal under new higher interest rates **with **penalty applicable on rate applicable for period of deposit

**Deposit Amount:** ₹20,000**Contracted Interest Rate:** 5.35%**Rate applicable for period of deposit:** 4.35% (Check this post on how to find this)**Penalty: **1%**Revised Interest Rate:** 6.00%**Interest Frequency: **Quarterly (Paid to account)**Deposit Period:** 7 years 3 months (87 Months or 29 quarters)**Maturity Date:** 28-March-2030

Again, in this case since the penalty is now being charged **on the interest for the reduced tenor**, hence the overall interest paid for this duration (6 month period) comes down to ₹337 as against the original ₹538. Since the bank would have already paid the interest, they will claim this extra ₹200 amount by reducing the principal and hence you can see that the Principal in the Revised Fixed Deposit comes to be as ₹19,799 as against the original ₹20,000.

As shown below, in this second case, the calculated new quarterly interest amount came out to be ₹297 and overall, I would have got an **extra ₹641** as interest. Let us now look at the scenarios where penalty is not applicable (or waived off)

### CASE 3: Renewal under new higher interest rates “**without” **penalty applicable on contracted interest rate

**Deposit Amount:** ₹20,000**Contracted Interest Rate:** 5.35%**Penalty: **NONE**Revised Interest Rate:** 6.00%**Interest Frequency: **Quarterly (Paid to account)**Deposit Period:** 7 years 3 months (87 Months or 29 quarters)**Maturity Date:** 28-March-2030

Now, you can notice that since no penalty is being charged at the time of pre-closure, hence the overall interest paid for this duration remains same ₹538 as against the original ₹538. Hence, you can see that the Principal in the Revised FD remains as ₹20,000.

As you can see below, in this case the calculated new quarterly interest amount came out to be ₹30 and overall, I would have got an **extra ₹930** as interest (all by visiting a bank). This looks like the best-case scenario (or is it?). Let’s find out by looking at the last and final case.

### CASE 4: Renewal under new higher interest rates “**without” **penalty applicable on rate applicable for period of deposit

**Deposit Amount:** ₹20,000**Contracted Interest Rate:** 5.35%**Rate applicable for period of deposit:** 4.35% (Check this post on how to find this)**Penalty: **NONE**Revised Interest Rate:** 6.00%**Interest Frequency: **Quarterly (Paid to account)**Deposit Period:** 7 years 3 months (87 Months or 29 quarters)**Maturity Date:** 28-March-2030

Since the rate applicable for period of deposit is exactly 1% less than the original contracted rate, hence this case becomes exactly same as that of **Case 1**. Now, let’s try to summarize all these cases.

### Summary of the Cases

Below screenshot summarizes the various cases that we have discussed above. As we can clearly see, that the Case No. 3 is the Best case scenario for me. But what really happened, let me reveal that now.

## What Actually Happened

I went to the bank with my old Fixed Deposit and the following slip.

I was expecting that one of the 2 scenarios will play out. Either Case 2 (most likely) or Case 1(and 4).

What actually happened was shocking for me and the bank staff!!! See below yourself.

As you can see, the Principal amount is ₹20,000 , Quarterly Interest amount is ₹300 and total interest is ₹8700 for period of 87 Months.

What does this mean. This means that **“Case 3 **– **Renewal under new higher interest rates “without” penalty applicable on contracted interest rate**” played out. Why?

Did the bank not only waive off the Penalty but also chose to give me the Interest Rate which was originally contracted (i.e. 5.35%)? How is this even possible?

**First, **I read on the bank’s website about what their deposit policy is. For easy reference, I am pasting the snapshot below, but beware that this may get changed in the future.

Since this policy talks states that “the Bank will permit the renewal at the applicable rate on the date of renewal, provided the deposit is renewed for a period longer than the balance/ un-run period of the original deposit.”, I chose to renew it for period which was 1 day more than the original contracted period. You can see that my original deposit maturity date was 27th March, 2030 and the new maturity date is 28th March, 2030. So, this is the first point to consider.

**Secondly, **this policy does not talk anything about any Premature closure penalty in any case. For e.g. if we refer to the ICICI Bank’s Deposit Policy, you can clearly read the clause about charging of penalties.

Thus, this becomes clear that if the bank’s current deposit policy does not talk about Penalties under Premature Renewal, then you can be assured that you will not be charged of the premature withdrawal or closure penalty as long as you are renewing it for duration longer than original maturity duration – even if it is one day longer.

What still remains as a mystery though is that for the 6 months duration that the original FD was opened with bank, the bank gave the interest at the original contracted rate of 5.35% despite the actual reduced tenor rate being 4.35%. Infact the current interest rate for 6 months duration in Bank of India is 5.00% (non-senior citizen). This was not what I had expected. So, what really happened here?

**Moment of Truth**

What happened actually was that while the Bank Staff did renew the Fixed Deposit for ₹20,000 , the interest credit for the previous quarter was ₹161.

Let me explain the calculations.

At 5.35% contracted rate, the interest for 1 quarter comes out to ₹268 – which was also the interest credited to my Savings account in September.

At 4.35% contracted rate (which is the rate for the reduced tenor), the interest for 1 quarter comes out to ₹218.

So, while for the next quarter, I was expecting the interest to be credited as ₹268, the bank did the following calculations.

₹268 + ₹268 – (₹218 + ₹218) = ₹100

Ideally this ₹100 should have been deducted from my principal bringing this down to ₹19900 and matching exactly as **CASE 4** but the bank chose to keep my Principal intact and instead deduct it from my interest (Smart Software!!!) This also matched the calculations I did on the right side of the cheat sheet. Thus, the Bank did waive off the Penalty but instead charged me with interest rate applicable for the reduced tenor (applicable at the time of booking my original Fixed Deposit). This all now made sense to me.

So, having the calculations done beforehand using my Excel calculator, I was confident (more than Bank Staff) on what really had happened.

I have also created a similar Excel Calculator for Fixed Deposits with Cumulative Interest (Interest Compounding), which I have used before renewing all my Fixed Deposits. The YouTube video of this excel has been garnered by more than 1.4 Lakh views so far.

## Summary and some other Important Points

Thus, it is possible to get your Fixed Deposit Renewed without paying any penalty if certain conditions are met. Also, clearly this is not something that every bank follows consistently for the reasons best known to them.

**Top Tip 1 – **If your bank is using the Banking Software Finacle, the bank can help you with the original contracted rate for reduced duration by using a command called HDEPMOD.

**Top Tip 2 – **If you bank is using the Banking Software Finacle, while getting your FD renewed, ask the bank to use the module HTDEXT and not HTDREN.

**Top Tip 3 – **The Fixed Deposit Account number got changed in my case but I have also heard that in some banks, it remains as same when going for Renewal/Extension.

**Top Tip 4 – **Sometimes, the bank staff may not also be aware of the policies. As new staff comes in, they need to learn a lot of new things and it is challenging for them to learn all aspects. Try to verify with a senior staff of the bank, bank’s manager or by googling bank’s policies. Alternatively, you can also watch my videos at youtube.com/@everypaisamatters. Hope you would have subscribed.

## Download Excel

- For FD with monthly/quarterly payout – Non-Cumulative Fixed Deposit or from here
- For FD with payout on maturity – Cumulative Fixed Deposit or from here

And while you are here, do also visit other useful calculators **listed here**.

## YouTube Video

Watch the Complete YouTube video from below.

Amitji, Excellent Post. Thank you so much for making this.

I just noticed that in Case 2 – “Rate applicable for period of deposit: 4.35% (Check this post on how to find this)” — there is no post linked to this. Can you please share/update this linked post.

This has been updated now, please check.