Fixed deposit maturing: What you should do next about your investment

Align your decision with your financial goals and consider the tax implications before making a decision

Don't want to miss the best from Business Standard?

When your fixed deposit (FD) investment matures, you have an important decision to make:  Should you withdraw the money or reinvest it? The answer depends on several factors:

Withdrawing for liquidity

If you have an immediate need for cash, withdrawal is the obvious choice. Withdrawing gives you flexibility to reallocate the funds to other investments.

Reinvesting for higher returns

Reinvesting is also a good option if you don't need the money immediately and want to keep it growing. If interest rates have risen since you opened your FD, reinvesting at the new higher rates can boost your returns.

Interest rates

Compare the current interest rates with that offered on your matured FD. If the new rate is higher, it might be beneficial to reinvest. If the rate is lower, it might be better to withdraw the principal amount.

Tax implication

Factor in the tax implications of withdrawing or reinvesting. The interest earned on FDs is taxable and the rate depends on your Income Tax bracket. Consider the tax implications before making a decision.

Risk tolerance

If you are averse to taking risks, reinvesting in a fixed deposit with a higher interest rate might be a better option. If you are willing to take on more risk, you could consider other investment options.

“One should keep this philosophy in mind with respect to investments is that it is always better to remain invested because we believe no one is perfect and no one can guarantee you that he/she will be able to generate a particular per cent of returns,” said Raj Vyas, vice-president of research at Teji Mandi, (a Sebi-registered investment advisor firm).