Indians are renowned across the globe for the value they place in tradition and trust. When it comes to savings avenues in the country, there are perhaps none more trusted than bank fixed deposits (FDs). For a seemingly ceaseless period of time, bank FDs have been the preferred mode of parking one's savings in a safe yet productive manner.
 

With fixed deposit interest rates being relatively non-volatile, these instruments are considered lesser risk and reliable, particularly in the long run. You can easily ascertain the interest rates offered by banks on fixed deposits of different terms using the fixed deposit calculator available on their official websites.
 

What is a Bank Fixed Deposit and How does it Work?

 

 

A bank fixed deposit is a financial instrument that enables you to deposit your savings with a bank and earn interest on said savings. You can think of a bank FD as your personal piggy bank with your bank, one which is kept safe by the latter. True to its name, bank fixed deposits have fixed interest rates for specific terms and specific amounts. For instance, an FD for two years shall have a fixed interest rate and the amount of the interest you earn will depend on the principal saved in the FD.
 

You can create a bank FD in two different ways, namely:
 

• Online through your bank's Internet banking portal or mobile banking application;
• Offline by visiting your branch.
   

Whilst opening a bank FD, you are required to advise your bank on the maturity instructions. In this context, you have to choose from amongst the following options whilst filling your FD form online or offline.
 

• Auto-renewal of principal plus interest on maturity;
• Auto-renewal of principal and payout of interest on maturity;
• Withdrawn, that is, the deposit of principal plus interest in the relevant savings account upon maturity.
   

How to Close Your Bank Fixed Deposit

You can close your bank fixed deposit whenever you want. However, it is not as simple as pulling coins or currency notes out of your piggy bank at home. Closing your fixed deposit with a bank before the maturity date of the instrument attracts a certain penalty on the interest accrued on the FD. Therefore, the premature closure of your FD will lead to a loss of interest. However, the safety, flexibility, and liquidity offered by bank FDs far outweigh the aforementioned penalty.
 

Modes of FD Closure
 

It is important to remember that an FD that has been created offline can only be closed through the designated offline mode, that is, through an application submitted at the relevant bank branch. On the other hand, an online FD can be closed either online or offline.
 

Offline closure of a bank fixed deposit
 

If you wish to close your bank deposit offline, you have to visit your bank branch and submit a duly filled FD closure form. There are two scenarios of an FD closure, namely closure after maturity and premature closure. Let us understand both of these scenarios with the help of examples.
 

1. Offline closure of a bank FD on maturity
   
   Mrs Sneha had a bank FD with PQR Bank that had a five-year term and a principal of ₹5 Lakh. Since she had not advised the bank for automatic renewal or closure at the time of creating the FD, she decided to visit her bank branch and apply for the closure of the policy. After carefully filling the FD closure form and enclosing her photo identification proof with the form and the FD certificate, Mrs Sneha submitted the documents at her branch.
   
   Within a day, the application got processed and Mrs Sneha received the proceeds of the FD (principal plus interest) in her bank savings account. Since the aforementioned FD was closed after the maturity of the instrument, there were no penalties and deductions. It is important to note that had Mrs Sneha opted for auto closure at the time of creating her FD, she would not have needed to visit her branch and submit the FD certificate and the form to apply for the closure of the FD.
   
   
2. Premature closure of a bank FD offline
   
   Mrs Supriya found herself in a sudden and urgent need of funds when her twelve-year-old daughter got severely injured in an inter-school gymnastics meet. Thankfully, she had a bank FD worth ₹10 Lakh that she could fall back upon in an emergency situation. However, the maturity date of the FD was still a year away which meant that there would be a certain penalty on the withdrawal of the FD.
   
   After submitting the FD certificate along with the duly filled withdrawal form and her photo identification document, Mrs Supriya had to wait for a few hours for the application to be processed and the FD proceeds to be transferred to her bank savings account. Furthermore, the maturity proceeds were inclusive of an interest penalty for premature withdrawal. However, with the premature closure of the FD, Mrs Supriya was able to pay the hospital bills and provide the required medical care to her daughter.
    

Online closure of a bank FD
 

The process for closing bank FDs online is much simpler and faster than its offline counterpart. All you have to do is visit your bank's website or mobile application and follow a few easy steps. However, you do need access to Internet banking or mobile banking to be able to close your bank FD online. Let us understand this process with the help of a few examples.
 

1. Online closure of bank FD on maturity
   
   Mrs Sirija was running short on funds to make travel arrangements for her planned family vacation. Therefore, she decided to close her bank FD worth ₹2 Lakh for which she had selected auto-renewal as the maturity instruction at the time of FD creation. Since the original FD had matured and the entire sum, including the principal and interest, had been allocated towards a new FD, technically, it counted as premature withdrawal.
   
   Upon logging in to her bank's dedicated mobile application, Mrs Sirija selected deposits and proceeded with the closure of the selected bank FD. After the mandatory 'One-time password' verification, the FD closure was completed and the proceeds immediately got credited to her savings account. It is important to note that had she chosen auto closure and transfer to her savings account as the maturity instruction, the entire amount would have automatically been credited to her savings account without the need to follow the aforementioned process.
   
   
2. Premature closure of a bank FD online
   
   Mrs Saarika had bank FD with a principal amount of ₹7 Lakh and a term of 3 years. However, during the third year of the term of the FD, she needed capital for bringing her start-up idea to fruition. Therefore, she thought it was a good idea to close her FD prematurely. Here are the steps she followed for the premature closure of her FD online.
    

• She logged in to her bank's official website
• Then she selected the fixed deposits option under the deposits tab
• She proceeded to select the FD she wanted to close and pressed 'close deposit'
• After checking the maturity advice and submitting it, she clicked on 'generate OTP'
• The FD got closed successfully and the maturity proceeds were instantly credited to her savings account.
   

Since Mrs Saarika opted for premature closure of her FD, she had to bear a penalty on the interest accrued.
 

Supplement FD Savings with Life Insurance Protection
 

In addition to saving your funds in a bank FD, you must also buy a life insurance plan and ensure the financial security of your family's future. A life insurance policy serves as a protective shield for your family in the unfortunate event of your passing. Furthermore, with versatile life insurance plans available these days, you can customise your policy and include the element of investment in it in addition to the life cover.
 

It is advisable to purchase an online life insurance policy and save on time and effort in the process. At Tata AIA, we offer a wide selection of life insurance plans that you can choose from. You can visit our official website and select and purchase a Tata AIA Life Insurance Plan that is in alignment with your financial goals and budget.
 

Both life insurance plans and bank fixed deposits carry the common element of safety but apart from that, they are drastically different financial instruments. Neither is better or worse than the other and the selection depends completely on your financial goals and financial preferences.
 

Conclusion
 

As illustrated by the examples discussed above, it is easier and quicker to close your bank fixed deposit online as opposed to the offline mode of closure. With the liquidity and safety that bank FDs carry, they are a trusted investment avenue. However, in order to provide financial protection to yourself and your family, it is advisable to also buy a life insurance plan.
 

L&C/Advt/2022/Sep/2294