Should you Renew or Withdraw your FD?

Fixed Deposit is one of the safest forms of investment. People heavily rely on fixed deposit for a safe return on investment over a period of time. Fixed Deposit help you get better returns within a period of five or ten years. The flexibility of tenure is a key feature of fixed deposit. FDs are similar to savings account except they yield higher benefits.

When we talk about fixed deposit, three things are to be kept in mind: The amount that you are depositing, tenure for which you are depositing and the rate of interest that is being offered. There are various banks and Non-Banking Financial Companies that are offering the service of FD. Just keep in mind that higher the rate of interest, better will be the returns when your investment matures.

However, most of the people have questions whether to withdraw or renew their FD when it matures. This is one of the most crucial questions from an investment standpoint. When your amount meets it maturity you will yield benefits through rate of interest but renewing an FD with the bank might help you get much better returns.

There are two factors that you need to consider when the question of withdrawing or renewing an FD comes to your mind in the current scenario:

  • Renewal will lead to better returns:

If you choose to renew your FD with a bank, the bank might reward you with better returns. For instance, if you deposited INR 10 lakhs for a period of 2 years at 8.5% rate of interest on FD, withdrawing the amount will give you the entitled sum. But if you choose to renew it, the bank might offer you a higher rate of interest up to 8.75%-9%. Thus under this circumstance, renewing is a better option.

  • Market condition:

The current market condition is not favorable for FDs. The government with its latest policies has brought down the rate of interest. Although it’s beneficial for home loan seekers, it’s not beneficial for people seeking to invest in fixed deposit. Moreover, experts are predicting that the fixed deposit state is not going to improve within the next few years.

Thus from the aforementioned points, we can understand that generally renewing an FD is a better option but due to the low rate of interest in the current market, it is preferable if you withdraw your FD before rates go down even further.

FD renewal is welcomed by the bank as they can use your funds to invest in something better and provide you with better benefits. But that’s not the case anymore in the current market condition. Thus FD withdrawal is a better option. Even after such a sad situation, you can still make the most out of this by investing in short term FDs.

  • Can you withdraw your FD prematurely?

It’s not advisable to break your FD. Foreclosures would not only lead to the end of your savings through FD but it will also make you liable for the penalty. Thus the rate of interest that you were getting initially will now be lowered down. Only if you have needs of prime importance to be fulfilled, should you opt for this option otherwise it’s not a favorable one?

Withdrawing or renewing your FD is a crucial decision. You should make a careful choice. FDs are a safe investment method and thus you won’t lose your money. But you wouldn’t want your money to stay with the bank for no reason. Thus evaluate carefully. If you have a decent financial condition then go for renewal whereas if the financial situation is tense, you can withdraw it.

 

Post Author: Jennifer Slegg