Exiting a fixed deposit before maturity usually incurs penalties, reducing your interest earnings. The bank may charge a premature withdrawal fee and offer lower interest rates, impacting overall returns. This makes early withdrawal less financially favorable compared to holding the fixed deposit until maturity.

**Here's an example for your reference.**

- Suppose, you've Invested ₹10K, for 3 years at 8%.
- 2 years later, you decide to break your FD for an emergency.
- Bank will now consider the Interest for the duration your FD was active, which may be lesser than 8%. Say the 2 year FD rate at the time of early exit is 6%.
- On top of this, bank will also deduct Early exit penalty (if any). Most banks charge around 1% as early exit penalty.
- So, the effective Interest rate for your FD will now be 6%
*(2 year rate)*- 1%*(Early exit penalty)*= 5%

If you're an opportunist, you may think that you can earn 9% in a scenario where the 2-year FD rate is 10%. To handle this scenario, the bank will now consider the difference between the actual rate and the interest penalty, which is 7% (8% - 1%).

**Here's the math:**

Interest paid at 8% for 2 years = ₹10K * 8% * 2 years =₹1,600

Revised interest at 5% for 2 years = ₹10K * 5% * 2 years =₹1,000

**Scenario-1:**If the bank hasn't paid any Interest to you till date, you will receive on settlement will be ~₹11,000 (₹10,000 + ₹1,000)**Scenario-2:**If the bank anything more than ₹1,000, they will recover the excess amount during the early exit settlement. Suppose, the bank already paid ₹1,600 to you, the amount you'll receive on settlement will be ~₹9,400*(₹10,000 - ₹600)*, since bank paid ₹600 in excess.

**Note:**

*The calculation is for explanatory purposes, and actual results may vary due to TDS deductions or differences in how banks calculate interest payments.**NBFCs like Bajaj, Shriram and Mahindra Finance won't pay Interest If you exit between 3 to 6 months, even when the lock-in is for 3 months*