Bank FDs are a popular investment in India. Conservative investors simply love Fixed Deposits. FDs have a term ranging from 7 days to 10 years. The money is safe and you get interest on the FD. The fixed deposit offers 6.5-7.5% a year. You can continue the FD till maturity or redeem it before end of tenure with a prepayment penalty. You can also avail a loan against FD (This is a loan against 80-90% of deposit value). These loans are much cheaper than personal loans.
You would have to surrender the deposit certificate after signing it. You then submit the signed form stating the FD may be closed on the maturity date. After the due date, the maturity proceeds are transferred to your savings bank account. For online FD, you can renew or close FD online.
What Does The Bank Do When FD Matures? Well, the bank has 2 ways of dealing with matured FDs.
The Auto-Renew Option: The bank renews FD automatically for one year. It could also be for the FD original term.
The Auto Liquidation: Your FD gets liquidated and the bank transfers the maturity amount to your SB account.
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See Also: Benefits of Fixed Deposit in India
Well you can, the interest rate is revised and a penalty would have to be paid. When you close the FD, interest is paid as per applicable rates for the tenure the deposit was kept at the bank and then a penalty is levied. After closure the money is credited to your saving bank account.
You could close FD prematurely if you need money for personal use. You can also reinvest the FD and enjoy a higher interest rate. Do look at the prepayment penalty when closing the FD and making a reinvestment.
Note: TDR is the term deposit and STDR is a special term deposit.
If you close FD prematurely, you lose the compound interest you could have earned. Then there’s a penalty on interest which varies across banks.
Let’s have an example:
You have deposited Rs 1 Lakh in a bank FD of tenure 10 years. The maturity amount would be Rs 1,95,300 if rate of interest is 6.75%. Now you withdraw the FD after 4 years. The interest rate for FD is 6.75% which you would get with a penalty of 1%. The net rate of interest you get is 6.75% - 1% = 5.75%. You get a maturity amount of Rs 1,25,655. This is a loss of nearly Rs 70,000. So, invest the amount withdrawn from FD only if you can cover this loss. If you need money in a hurry, it would be wise to avail loan against FD.
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