When your Fixed Deposit matures, you have several options regarding what to do with the amount. Knowing about these choices in advance can help you make the best decision for your financial goals. Here is what happens to your FD after it reaches maturity:

Automatic renewal of FDs

Many banks offer an auto-renewal option for FDs. If you opt for this, your principal amount and interest are automatically reinvested in a new FD for the same tenure at the prevailing interest rate during renewal. While this option is convenient, you should check the terms and Fixed Deposit interest rates before the maturity date, as they might have changed.

Interest payout

If you receive interest payouts monthly, quarterly, or annually instead of compounding, the interest is credited to your account upon maturity. You can choose to either withdraw the interest and leave the principal intact or reinvest the interest into a new FD. Later, you can use it for other investments or expenses. Interest payouts are often credited directly to your bank account.

Withdraw the amount

Upon maturity, you can plan to withdraw your entire FD amount as a lump sum. You can do this by visiting the bank in person or using the bank’s online platform. The withdrawal is credited to your Savings Account. You can withdraw the full amount. However, if you decide not to cancel, the FD automatically renews unless you opt out.

Reinvesting in a new FD

If you are satisfied with the returns and interest rates, you can reinvest the maturity amount into a new Fixed Deposit, possibly with a different tenure or bank, depending on your needs. You can also use the interest earned to create a fresh FD to generate ongoing returns.

Penalty on premature withdrawal

If the FD is not withdrawn after maturity, some banks may impose a penalty or lower interest rate on the funds that are left unclaimed. This is especially true when the FD is allowed to renew automatically after maturity.

Taxation on maturity

When your FD matures, the interest earned is taxable under income from other sources. Depending on your tax bracket, the interest income is subject to TDS if it exceeds the threshold limit. Ensure that taxes are accounted for before you withdraw the amount.

What happens if the FD is unclaimed?

Claim your matured FD within the specified time frame to avoid being treated as an unclaimed FD. Banks typically have an unclaimed FD process, and the amount may be transferred to a separate account. You can still claim the FD, but the process may involve additional formalities.

Conclusion

Upon the maturity of the FD, you have several options, including withdrawing the funds, reinvesting them, or allowing them to auto-renew. The choice depends on your financial needs, goals, and the current interest rate environment. Ensure you review your FD options and decide well before the maturity date to avoid penalties or lost opportunities. Also, be mindful of tax implications on the interest earned.