Asha invested Rs 3 lakh in a Fixed Deposit. She opted to lock in her money for seven years. She had asked for an auto-renewal setting. The move proved to be wise. When the FD matured, the new rate was 10%. Asha’s money got reinvested immediately at the new rate. So, she earned more money than she had on the previous FD. Had she waited for a few months, she may have missed that chance.

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What Happens When an FD Matures?

What do you think happens when an FD matures? Where does the money go? Several scenarios can play out now. They are:

  • Withdrawal: You can withdraw the principal along with the accumulated dividends. You can do this by visiting your bank or Non-Banking Financial Company (NBFC).
  • Auto-withdrawal: When you open the FD account, you can give the details of a savings account. Upon maturity, the bank or NBFC may transfer your FD money to that account.
  • Renewal: You can renew the FD for the same duration after it matures. You can also renew it on different terms. Then opt for a different interest rate or different tenure.
  • Auto-renewal: Suppose you opt for the auto-renewal option. Then the NBFC or bank can lock in your money in a similar FD. The term and rate of interest may be the same.
  • Unclaimed FD: Suppose no one comes forward to collect the FD amount after its maturity. The FD holder may not have given any instruction about its withdrawal or renewal. In that case, the bank or NBFC can usually reinvest it under similar terms. They may do this for two or three cycles. What if they still cannot track the investor? They may then pay the amount to the nominee.

FD Withdrawals: Advantages and Disadvantages

There are some advantages of withdrawing an FD upon maturity. You might have created it for a specific purpose. That could be to fund a wedding, pay for a university course, and the like. It would make sense to withdraw the money and use it in the desired way. What if the rates are favourable? Then you can withdraw the money and invest it in a new FD at a higher interest rate. This can help you earn more dividends.

But, there are also some disadvantages of withdrawing an FD. For starters, the current FD interest rate may be much lower than the rate you were enjoying. So, if you want to reinvest, you can lose a lot of dividend money. Also, people often end up spending the money they get from an FD in an irresponsible manner. Suppose the money stays locked in an FD. You tend to follow more financial discipline.

FD Renewals: Advantages and Disadvantages:

Renewing an FD can be helpful. A renewal can help you put away your money. It can prevent you from making unnecessary expenditures. Moreover, it requires minimal paperwork. It’s easy and happens automatically.

But, there can also be some disadvantages of renewing an FD. You may get stuck with a Deposit at a lower rate. Your money might continue to stay locked in for a longer period. You cannot withdraw it until the renewed FD matures. That may take a few years.

Additional Read: All You need to know about Fixed Deposit

 

The bottom-line

Both FD withdrawal and renewal have their pros and cons. Keep in mind your financial challenges, your economic goals, and your spending habits. Select the FD option based on these factors. Your ultimate aim must be to save more and grow your wealth. FDs allow you to do this by helping you earn higher dividends.

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