Fixed Deposit Renewals & Withdrawals: Benefits & Process

Fixed Deposits (FDs) are a popular investment option in India, valued for their security and guaranteed returns. Whether you invest in FDs through banks or Non-Banking Financial Companies (NBFCs), understanding the processes of fixed deposit renewal and fixed deposit withdrawal is crucial for managing your investments effectively. Let us understand the essence of FD renewals and withdrawals, including the steps involved, potential pitfalls, and important considerations.

Understanding Fixed Deposits

Fixed Deposits are a type of term deposit where you invest a sum of money for a fixed period at a predetermined interest rate. This period can range from a few months to several years, depending on your preference. Upon maturity, the bank or NBFC pays back the principal along with the interest accrued. The fixed interest rate ensures that your returns are predictable, making FDs a preferred choice for conservative investors.

For example, imagine you open an FD account with ₹3 lakh for a tenure of 10 years at an interest rate of 10%. Upon completing the 10-year period, you have the option to either renew the FD or withdraw the funds. If you forget to renew, the bank may automatically renew the FD for the same tenure, provided you have given maturity instructions for auto-renewal.

Read More About How to Invest in Fixed Deposit?

Key Terms to Know

Withdrawal: This refers to withdrawing the principal and interest from the FD when it reaches maturity. You can either take the amount or reinvest it.
Renewal: When an FD matures, it can be renewed for the same tenure at the current interest rate, allowing you to continue earning interest.
Auto-Withdrawal: This occurs when the bank or NBFC automatically credits the maturity amount to your savings account upon completion of the FD’s tenure.
Auto-Renewal: If instructed, the bank will automatically renew the FD for the same duration at the current interest rate upon maturity.
Premature Withdrawal: Breaking the FD before the maturity period. This may result in penalty charges and reduced interest earnings.

The Importance of FD Renewals

Renewing an FD means reinvesting the maturity amount into a new FD, usually for the same tenure. The renewal happens at the current interest rate offered by the bank or NBFC. It’s essential to keep track of your FDs and the prevailing interest rates to make informed decisions about fixed deposit renewal.

If you forget to renew an FD, it might lead to complications in claiming the maturity amount later. Moreover, automatic renewal at a lower interest rate can result in lower returns compared to what you might get if you actively choose a new FD with a better rate. On the other hand, premature withdrawal of an FD may attract penalty charges, which can reduce your overall earnings.

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Renewal of Fixed Deposits

When your FD reaches maturity, you have two options: fixed deposit renewal or fixed deposit withdrawal. Renewal is particularly beneficial if you have no immediate need for the funds and wish to continue earning interest. The auto-renewal feature allows the bank or financial institution to renew your FD for the same tenure automatically, making the process hassle-free.

However, it’s essential to monitor interest rates at the time of renewal. If rates have decreased since you first invested, auto-renewal might lock your money into a lower-return investment. Therefore, it’s always a good idea to review the terms before allowing auto-renewal.

Withdrawal of Fixed Deposits

If you opt for a fixed deposit withdrawal, the FD is closed upon maturity, and the funds are transferred to your pre-selected savings account. This option allows you to access your funds and potentially reinvest them in a higher-yielding instrument or use them as needed.

Premature withdrawal, which refers to withdrawing funds before the FD matures, is possible but often comes with penalties. Banks typically charge a penalty ranging from 0.5% to 1% of the interest rate, depending on the bank’s policy. Therefore, it’s advisable to plan your finances to avoid the need for FD withdrawal before maturity.

How to Close an FD Prematurely? Step-by-Step Process

Closing an FD prematurely can be done online through your bank’s website. Here’s how:

Log in

Use your bank’s online portal or mobile app with your login credentials. Ensure you have an active internet banking account.

Navigate

Go to the home page and find the option to ‘Close FD account prematurely.’

Select FD

A list of your FDs will be displayed. Choose the one you wish to close.

Verify Details

Review the details and provide the necessary password or OTP to authenticate the transaction.

Receive Funds

The funds will be credited to the bank account linked to your FD.

If you need to initiate a fixed deposit withdrawal before maturity, ensure that you submit the necessary application for FD withdrawal. This can typically be done by filling out the FD withdrawal application form through the bank’s online platform or at the branch office.

How to Close an FD After Maturity?

To close an FD after maturity, submit a fixed deposit certificate signed by the account holders to the bank. You’ll also need to submit a form authorising the closure of the FD on the maturity date. This process can often be completed online if your FD account was opened through internet banking. If you don’t close your FD on the maturity date, the bank may automatically renew it or transfer the maturity amount to your savings account.

To facilitate a smooth withdrawal process, ensure that you submit the correct application for withdrawal of fixed deposit. This ensures that the bank processes your request efficiently.

What Happens When You Forget to Renew an FD?

It’s common to forget about an FD, especially when it has a long tenure. However, forgetting to renew can have significant financial implications.

Consider this scenario: You invest ₹5 lakh in a 5 year FD with an interest rate of 10%. At the end of 5 years, if interest rates have dropped to 8%, an auto-renewal would reinvest your funds at the new, lower rate, reducing your returns. Alternatively, if you had opted for a fixed deposit withdrawal, you could reinvest at the current rate or explore other investment options.

Forgetting about an FD can also lead to penalties. If you return to the bank after the maturity period and request a withdrawal, the bank might treat it as a premature withdrawal, resulting in a loss of interest. In such cases, opting for auto-withdrawal ensures the maturity amount is transferred to your savings account, where you can decide how to use it.

Things to Remember About FD Auto-Renewal

Choice: After opening an FD, you can choose the auto-renewal option.
Same Terms: Upon maturity, the FD will be renewed for the same tenure at the previous interest rates.
Auto-Termination: Alternatively, the maturity amount can be transferred to your savings account, allowing you to make new investment decisions.

Conclusion

Fixed Deposit renewals and withdrawals are essential aspects of managing your investments. Whether you choose to renew or withdraw your FD depends on your financial goals, market conditions, and the interest rates available.

Track your FDs, review interest rates periodically, and provide clear maturity instructions to your bank. This will help you avoid the pitfalls of auto-renewal or premature withdrawal and ensure that your investments continue to grow in alignment with your financial objectives.