Renewals and Withdrawals of Fixed Deposits

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

1. Withdrawal - A term deposit holder can withdraw the principal invested along with the interest earned when the FD reaches maturity
2. Renewal - An FD holder can renew a deposit when it reaches maturity for the same tenure if she/she wants to do so.
3. 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.
4. 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.
5. 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

1. On maturity, an FD can be directed toward renewal or withdrawal.
2. 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.
3. This is a good option if you have invested funds without any foreseen need for them.

Withdrawal of FDs

1. The auto-termination option shuts down the FD on maturity and transfers the funds to a preselected savings account.
2. 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.
3. It is important to take an informed decision while renewing your FD so as to get the highest benefits.
4. 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?

1. '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.

1. Let's say you invested Rs. 5 lakh in a 5-year FD with interest rate of 10%. At the end of 5 years, the fixed deposit rates have fallen to 8%, a significant decrease over the said period.

1. 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.

1. If you had opted for withdrawal, a new FD will offer you 8% rate of interest on the deposit.

1. Suppose you have bought an FD of Rs. 5 lacs for a tenure of 5 years and forgot about the maturity date.

1. In the 6th year when you realize that you had invested in an FD, you go back to the bank and ask for a withdrawal of funds.

1. 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.

1. 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

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