Saturday, July 8, 2017

Can you break NRE fixed deposit Prematurely? ICICI vs SBI vs HDFC vs Kotak

One of the common questions amount NRI investor putting their money on NRE fixed deposit is whether they can close the NRE fixed deposit before maturity or not? and if break the NRE FD is allowed then what is the penalty? This is a very good question and every NRI should ask this to himself or anyone suggesting him to open an NRE fixed deposit account.

Yes, you can close the NRE fixed deposit before it gets matured but interest will be calculated at the rate applicable for the period the deposit has actually remained with the bank and you might need to pay the penalty as well, which varies from bank to bank e.g. ICICI bank has different penalty than HDFC or Kotak Bank.


Similarly, public sector banks which offer NRE fixed deposit e.g. SBI, Union Bank or Dena bank has different rules and penalty regarding premature withdrawal of NRE FDs.

In this article, we will learn and analyze the process and penalty of four major Indian banks regarding breaking NRE fixed deposit before maturity.


Breaking an ICICI NRE FD before Maturity

First of all, ICICI bank does allow you to break the NRE fixed deposits. When you break the NRE FD before maturity then interest is calculated only for the duration deposit remained with the bank and rate is also subject to penalty and duration.

Another important thing to remember is that minimum duration of NRE fixed deposit is 1 year, which means if you close the deposit before completing 1 years then no interest will be paid. So don't break your NRE fixed deposit before 12 months.

The penalty rates are 1% for NRE FD of less than 5 Crore if its original duration is less than 5 years or more than 5 years, but for NRE FD of value greater than 5 Crore the penalty interest rate is 1% if amount is less than 50 million INR and 1.5% if more than 50 million INR.

For example, if you open an NRE fixed deposit of 50 lacs for 3 years and closed it after completion of 2.5 years than you would get the interest applicable for 2 years deposit at the time of booking the original fixed deposit.




Breaking the HDFC bank NRE FD before Maturity

HDFC bank also allows you to prematurely withdraw the NRE fixed deposit, but if the NRE FDs are booked on or after 1st May 2003 will qualify for interest only if they have run for a minimum period of 12 months.

This is same as other banks e.g. ICICI and SBI. The interest rate applicable on premature closure of NRE fixed deposits (all amounts) will be lower the base rate for the original/contracted tenor for which the deposit has been booked Or the base rate applicable for the tenor for which the deposit has been in force with the Bank.

Also, the partial premature withdrawal and a sweep-in facility are not allowed for fixed deposits booked for 1 Crore INR and above.Currently, HDFC along with Deutsche bank is offering best NRE fixed deposit rate around 7% for 2390 days.




Breaking the SBI NRE FD before Maturity

SBI bank also allows you to break the NRE fixed deposit before maturity. Similar to ICICI, no interest is payable if the NRE deposit is withdrawn before completing one year, irrespective of amount.

After that penalty and the actual interest rate is subject to when you have opened the NRE term deposit and the value of NRE FD. For deposit below 1 Crore INR No penalty will be levied, for deposits opened or renewed from 10th April 2015 and withdrawn after completion of one year and deposit amount is up to Rs. 5.00 lacs.

In all other cases, on premature withdrawal of the NRE fixed deposit (after completion of 1 year), interest will be paid at the applicable rate for the period the deposit has actually remained with the Bank or contracted rate less applicable penalty (as per table mentioned below), whichever is lower.  See here to learn more




Breaking the Kotak Mahindra NRE FD before Maturity

Kotak Mahindra bank offers two kinds of NRE and NRO fixed deposits, first in which Premature Withdrawl are allowed and second on which Premature withdrawal are not allowed. There is a slight difference in the interest rate for later but remember you cannot break this FD before maturity. For first one, similar to other banks, no interest will be paid if NRE term deposit stays less than 1 year.

In short, almost all major banks, both private and public sector allow you to break the NRE fixed deposit before maturity, but no interest will be paid if you close the NRE fixed deposit before completing 1 year.

Can you Break NRE fixed deposit Prematurely? ICICI vs SBI vs HDFC vs Kotak


Most of the bank also levy penalty depending upon initial amount of NRE FDs but some bank like HDFC doesn't levy any penalty but the interest is paid at the rate applicable for the duration your deposit actually remained with the bank e.g. if you book the deposit for 5 years but broke it after 2 years than the prevailing rate of 2 years NRE FD at the time of booking will be used, subject to any penalty.

It's better to book multiple NRE Fixed deposits with different duration to avoid breaking the big one and attracting penalty e.g. if you want to invest 50 lacs in NRE fixed deposit than break it into 3 or four NRE FD of 20 lacs, 15 lacs, 10 lacs and 5 lacs and invest it for 390 days, 2 year, 5 year etc, depending upon your future need and convenience.

You can also choose the option of auto renewal to avoid the hassle of again doing fixed deposit again after 1 year.


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