• Renewals and Withdrawals of Fixed Deposits

    Fixed Deposits (FD), are a popular investment choice among Indians and is always subject to renewal and withdrawal. This applies to all types of term deposits including those in banks and those in Non-Banking Financial Companies (NBFC). Let’s say you open an FD account for Rs.3 lakh for 10 years at the rate of 10%. After the completion of 10 years, the term deposit will have to be renewed if you want to continue to hold to it. Otherwise, it has to be withdrawn. In case you forget to renew it, it will be auto-renewed for the same tenure if you have given maturity instructions. Renewal happens at the present interest rate that is offered on the term deposit.

    It is very important to keep track of your term deposits, because if you completely forget to renew it, the maturity amount will be difficult to claim later or it may be paid to the nominee. Auto-renewal may prove disadvantageous if the bank has reduced its interest rates. On the other hand, premature withdrawal may be subject to penalty charges.

    Important terms on Renewal and Withdrawal of FDs

    • Withdrawal: A term deposit holder can withdraw the principal invested along with the interest earned when the FD reaches maturity
    • Renewal: An FD holder can renew a deposit when it reaches maturity for the same tenure if she/she wants to do so.
    • Auto-withdrawal: Auto-withdrawal happens when the bank or NBFC automatically credits the maturity amount (principal + interest) to the customer’s savings bank account upon completion of the deposit tenure.
    • Auto-renewal: If an FD holder has given instructions to the bank, the deposit will be automatically renewed for the same duration at the current rate of interest.
    • Premature withdrawal: When a deposit is broken before the maturity period it is referred to as premature withdrawal. Some banks may charge a penalty for this.

    Renewal of FDs

    • On maturity, an FD can be directed toward renewal or withdrawal.
    • The renewal clause is available as an auto-renewal feature, wherein the bank or financial institution will automatically renew your deposit for the same period of time and at the same interest rate on maturity.
    • This is a good option if you have invested funds without any foreseen need for them.

    Withdrawal of FDs

    • The auto-termination option shuts down the FD on maturity and transfers the funds to a preselected savings account.
    • Once again, the auto-termination option might result in lower interest rates on your reinvestment owing to market changes during the tenure of the original FD.
    • It is important to take an informed decision while renewing your FD so as to get the highest benefits.
    • Withdrawal can be done even before the FD matures, however, this may attract some penalty charges

    How to Close an FD prematurely online: Step-by-step process

    • Step 1: Log on to your bank website using all login credentials. Please note that you need to have an active internet banking account to close an FD online
    • Step 2: Once logged in, go to the home page and click on ‘Close FD account prematurely’
    • Step 3: A list of all the FDs that you have will be displayed, click on the one you wish to close
    • Step 4: Verify details and provide password credentials to authenticate the transaction. The funds will be credited to the account that is linked to the term deposit.

    How to Close an FD after Maturity

    To close your FD account after maturity, you have to submit a fixed deposit certificate signed by the account holders to the concerned bank. Furthermore, you will be asked to submit a form with your signature stating that the FD can be closed on the maturity date.

    An online FD account can be closed or renewed online. If you fail to close your FD on maturity, the bank may either transfer the maturity amount to your savings account or renew your FD.

    What Happens When you Forget to Renew an FD?

    ‘Buy and Forget’ mentality, you might sometimes lose out on better deals which you could have found even on a cursory look at available options.

    Let’s say you invested Rs.5 lakh in a 5-year FD with interest rate of 0%. At the end of 5 years, the fixed deposit rates have fallen to 8%, a significant decrease over the said period. In case you had opted for auto-renewal, you would have been automatically enrolled in the same FD for another 5 years and at the same rate of 10% regardless of market rates. If you had opted for withdrawal, a new FD will offer you 8% rate of interest on the deposit.

    Suppose you have bought an FD of Rs.5 lacs for a tenure of 5 years and forgot about the maturity date. In the 6th year when you do realize that you had invested in an FD, you go back to the bank and ask for a withdrawal of funds. The bank obliges, but you end up losing interest for the excess 1 year of deposit because it will be considered preclosure of the account. If you had opted for auto-withdrawal, you would have received the amount in a bank account and taken decisions to grow it or let it idly earn savings interest.

    Things You Must Remember About FD Auto Renewal

    • After opening an FD account, you can choose to auto renew it.
    • Once your FD matures, the bank will renew your FD for the same tenure and previous interest rates.
    • Another case is your FD will be auto terminated, which means, the maturity amount will be transferred to your savings account.

    FAQs on FD Withdrawal and Renewal

    1. What is maturity instruction?

      When you are purchasing an FD, all banks and NBFCs ask for what is known as a maturity instruction. Instructions can be given for auto-renewal of the term deposit.

    2. Can an FD be renewed online?

      Yes. If the deposit account has been opened online, it can also be renewed online through net banking or mobile banking.

    3. Do all banks charge a fee/fine/penalty for premature withdrawal?

      This varies from bank to bank. While some banks or NCFCs may levy a certain fee, others may not.

    4. Can I withdraw a tax saver deposit before the completion of the said tenure?

      No. All Tax saver FDs come with a lock-in period of 5 years, before which no withdrawal can be made at any cost.

    5. How to ‘break’ an FD?

      In case of any kind of financial emergency, you can close the term deposit before the agreed duration and get the funds credited to your bank account.

    6. Can I withdraw interest from my FD account?

      Yes. In case of a non-cumulative fixed deposit, you can avail of interest on a monthly, quarterly, half-yearly or annually basis.

    7. How do I stop my fixed deposit from automatically renewing?

      If you want to stop your FD from automatically renewing, you have to inform the bank before your FD matures.

    8. How is the penalty calculated on premature withdrawal of fixed deposits?

      You will have to pay 0.50%-1.00% of the interest as a penalty if you prematurely withdraw your fixed deposit.

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