Renewal or Withdrawal—Which One Should you Choose When your Fixed Deposit Matures?

Opening a Fixed Deposit account with a financial institution is a safe bet for many investors. The money stays put for a long time whilst raking in interest from steady Fixed Deposit rates, till the end of the tenure. Since the interest is compounded, this assures better returns than a regular savings account. And this only gets better as the tenure increases, resulting in a considerable spike in returns.

This benefit has coaxed investors to opt for renewal of their Fixed Deposits upon maturity. However, there are others who favour the option of withdrawal.

So, how do you know what’s better for you?

Perhaps a dissection of your available options will uncomplicate matters, so that you don’t waste time and effort when your deposit bears fruit.

Withdrawing Fixed Deposits

When your Fixed Deposit matures, you’ll have the option to withdraw your money as soon as the funds are made available. This happens once you opt for ‘auto-termination’ which closes the FD account and shifts the funds to wherever you’ve requested, like your savings account in your bank. However, if you opt for termination after maturity, you will not get any interest in the future.

For instance, let’s assume you invested in a Fixed Deposit for 5 years and completely forgot about its maturity. In the 7th year, you realise that you have your money parked in a deposit that has matured two years ago. You approach the financial institution and ask for withdrawal. They approve and transfer the principal amount with the gained interest over five years into your savings account. But they’ll not offer you the interest for the additional 2 years due to preclosure of your Fixed Deposit. If you’d opted for an auto-termination, the money would’ve been transferred at the end of the 5th year, which could then have been reinvested or left in the savings account to earn interest.

The Renewal Option

The renewal option is better than withdrawal if you do not have an immediate need for funds. With this feature the tenure of the deposit is renewed with the same rate of interest, as offered during the original FD term. However, it can also backfire as you stand to miss out on higher rates of interest.

Say that you’d invested Rs.50,000 at 8.5% interest for 5 years. With the renewal feature, you’ll avail 8.5% interest even if the current rate stands at 7%. However, you lose out on a higher return if the interest rate shoots up.

What’s your Pick?

The decision to opt for renewal or withdrawal must be taken only after inspecting market trends and economy speculations. Renewal makes more sense if the interest rates after maturity have dipped. On the other hand, withdrawing proves beneficial if the interest rates escalate. The rate of interest will have a major hand to play in your decision to withdraw or renew, which is why you should consult financial experts and predict gains with a FD return calculator.

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