FD: How to close a fixed deposit


Bank fixed deposits (FDs) has always been a popular investment alternative especially among investors who are conservative and need to preserve their capital. In banking parlance, bank FDs are called term deposits as they are for a specific term ranging from 7 days to up to as long as 10 years.

In addition to the safety of the capital and a fixed rate of interest, FDs also provide liquidity to the investor as they can be accessed at the time of need. The FDs may be continued till its maturity or can even be redeemed or the surrendered before the end of its original tenure.

Let us see how to close an FD (whether opened online or offline by visiting a bank branch), both on maturity and premature closure. The actual requirement may vary across banks, hence know them from the bank before proceeding with the closure.

Before we tell you how to close an FD, it is important to note that closing a five-year tax-saving FD before the end of the tenure is not allowed by any bank.



Closure of FD on maturity
Banks may have their own specific requirements but the primary requirement will be to surrender the deposit certificate after signing is done by all the holders. In addition, the individual may be asked to submit a signed form indicating that the FD may be closed on the maturity date. The maturity proceeds after the due date will then be transferred to the savings account of the individual. In case of online FD, the option to renew or close the FD on the maturity date can be done online. The maturity proceeds will then be credit to your savings bank account.

Further, unless the deposit holder acts, the bank has two ways to deal with the matured FD on the due date.

a) Auto renew: On the due date, the bank may renew the FD automatically for one year or for the original term of the FD.

b) Auto liquidation: On the due date, the FD gets liquidated and the bank transfers the proceeds to the savings account.

Check the terms and conditions on the deposit certificate, receipt or the deposit advice to know what will be applicable in case of your deposit.

Early closure of FD
An early closure of the bank FD is allowed but the interest rate may be revised and even a penalty may have to be paid. On premature closure of the FD, interest will be paid as per the rate of interest applicable for the tenure during which the deposit was kept with the bank and then a penalty may be levied thereafter. Once closed, the funds will be credited to the savings account of the individual.

One may prematurely close the FD for personal use of the funds or may reinvest in a new FD at a higher interest rate. In case the reason is latter, evaluate the loss due to penalty before closing the FD and reinvest it again. The process involves filling up a Form with the bank and indicating whether you need entire or partial funds in the savings account and balance to be reinvested at higher rate of interest.

a) Partial closure: For the deposit amount remaining after the part withdrawal, interest rate will be reset as the rate applicable for the amount remaining, for the original tenure, as prevailing on the date of opening of the deposit.

b) Full closure and reinvestment into new FD: In case of the fixed deposit being prematurely closed for the purpose of reinvestment into another scheme of fixed deposit, the existing deposit would be subject to penal rate of interest as prescribed by the bank on the date of deposit. Interest will be paid for the period the deposit has remained with the bank. The interest rate prevailing on the date of re-investment of term deposit will be applicable for the new term deposit.



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