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 Otherwise, it has to be withdrawn.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.
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.
‘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.
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.
Yes. If the deposit account has been opened online, it can also be renewed online through net banking or mobile banking.
This varies from bank to bank. While some banks or NCFCs may levy a certain fee, others may not.
No. All Tax saver FDs come with a lock-in period of 5 years, before which no withdrawal can be made at any cost.
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.
Yes. In case of a non-cumulative fixed deposit, you can avail of interest on a monthly, quarterly, half-yearly or annually basis.
If you want to stop your FD from automatically renewing, you have to inform the bank before your FD matures.
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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