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Interest will be posted with the Post / Pre-maturity interest rate as defined while creating a FD account for that customer.
Lock-in Period
Financial Institutions define a lock-in period for a Fixed deposit product. If customer wish to withdraw the Fixed deposit are entitled to honor the Lock-in period function to avail interest for the Date of Deposit account to withdrawal date with the pre-maturity interest rate.
Customer will also be penalized heavily if they do not want to honor the lock-in period.
Use-Case: If "Lock-in Period" selection while adding the Fixed deposit account
If customer comes to withdraw FD before the lock-in period, user should be prompted about the lock-in period.
- Calculate interest with pre-closure interest rate.
- Calculate penalty / pre-closure charges based on the pre-closure product definition
- Post a withdraw entry with FD amount & Interest
- Post a pre-closure penalty entry
Pre-closure charges / Penalty for Fixed Deposit: Configuration of the pre-closure should be very dynamic. It varies from Financial Institution to institution.
- Few MFI configures pre-closure charges only if customer withdraws amount before the lock-in period.
- Other MFI do not define the lock-in period. However, the pre-closure charges are deducted from the FD Interest payable amount.
Use-Case: Flat Amount
If customer withdraws before the lock-in period or the maturity date a nominal pre-closure charges are added to the customer FD account.
Pre-closure charges can be defined as a fixed amount
Use-Case: % of pre-closure Interest payable
If customer withdraws before the maturity date or Lock-in period a nominal charges are added to the customer FD account. Charges will be defined as % of the Interest payable to the customer for the FD Account commencement date to the withdraw date.
Appendix:
Algorithm to calculate Effective Annual Rate (EAR) = (1 + (i/n))^n -1 where,
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