Banks earn their revenue primarily by sourcing their funds at a lower cost and offering loans at a higher rate. The difference is their profits. To do so they must accept deposits and lend in the form of loans to borrowers.
Fixed deposits are one of the ways banks source their funds. One of the advantages of fixed deposits are that they come with a predefined term. The bank essentially pays the depositor an interest in order to be able to use those funds for a definite and particular term. Most banks therefore charge a penal interest if the depositor wants to encash his FD prematurely.Reasons why banks don’t offer flexible FDs
These are few of the reasons why banks do not offer flexible FDs by default. To break a term deposit prematurely, the customer must approach the branch and agree to pay the penal interest/charges and only then allowed to make a premature withdrawals.
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