Fixed Deposit Transfer: Process and Implications

Transferring a Fixed Deposit (FD) from one bank to another can be a strategic financial move. Whether you're seeking better interest rates, improved banking services, or more favourable terms, transferring your FD requires careful planning to ensure that you maximise benefits.

In this blog, we will provide you with a step-by-step guide on how to transfer your fixed deposit between banks. 

Understanding Your Current FD Terms 

Before initiating the transfer, it's crucial to review the terms and conditions of your current FD. Take note of the maturity date, interest rate, and any penalties for premature withdrawal. Some banks impose penalties that could reduce your interest earnings if you withdraw the FD before it matures. Let's consider an example: 

Example:

You have a fixed deposit of ₹5 lakhs with Bank A at an interest rate of 7% p.a. The maturity date is three years from now. If you decide to withdraw it prematurely after two years, Bank A charges a penalty of 1% on the interest earned.

In this scenario, if you transfer your FD to another bank with a higher interest rate or better terms, you need to calculate whether the potential benefits outweigh the penalty imposed by Bank A. 

Point to note: Ujjivan doesn't charge any premature withdrawal fee for withdrawals made after 6 months from the time of deposit.

Comparing New FD Options 

Researching and comparing FD offerings from various banks is essential when considering a transfer. Pay attention to factors such as tenure, minimum deposit amounts, and any special schemes offered by the new bank. Effective FD portability involves choosing a new FD that offers better returns or suits your financial goals more closely. Let's explore another example: 

Example:

Bank B offers an FD at an interest rate of 8% p.a. with a minimum deposit requirement of ₹1 lakh. The tenure options range from 1 to 5 years, providing flexibility based on your investment goals. 

By comparing the offerings of different banks, you can make an informed decision about the best FD option for your needs. 

Contacting Your Current Bank 

To transfer an FD from one bank to another, you must close the FD with the current bank and open a new FD with the new bank. However, it is possible to transfer an FD from one branch of the same bank to another branch. 

Contact your current bank once you've selected a new bank and inform them of your intention to transfer your FD. They will guide you through the process and provide you with the necessary documentation. 

Preparing Necessary Documentation 

Gather all the required documents for the transfer process. Typically, this includes your FD receipt, identification proof, and any forms required by both the old and new banks. 

If the FD is in a joint account, ensure that all account holders are present and provide their consent for the transfer. 

Initiating the Transfer 

Submit the required documentation to your current bank and request premature closure of the FD. The bank will process your request, and you'll receive the principal amount along with any applicable interest up to the date of closure. 

Simultaneously, open a new FD account with your chosen bank and deposit the amount received from closing your previous FD into the new account. Follow the procedures and complete any required forms specified by the new bank. 

Monitoring the Transfer 

Once you've initiated the transfer, it's crucial to monitor its progress to ensure that all transactions are completed smoothly. Check your new FD account to confirm that the deposit has been made and that the interest rate and terms are as expected. Keep records of all transactions and communications for future reference. 

Review and Adjust 

After the transfer is complete, take the time to review your new FD's performance and ensure that it aligns with your financial goals. If needed, make adjustments to your investment strategy based on changes in interest rates or your financial situation. 

How can I calculate the penalty for premature withdrawal of my FD? 

The premature FD withdrawal penalty fee varies across banks. Usually, it's 1% of the interest rate pertaining to the tenure. For example, if you have booked an FD for 7 years at an interest rate of 7%. You decide to withdraw the amount on the 6th year. 

Let's say the applicable interest rate on the 6th year is 6%. The 1% penalty fee will be imposed on this 6% (prevailing rate pertaining to the tenure). So, you will get 5% interest on your FD at the time of withdrawal. Ujjivan doesn't charge any fee for withdrawals made after 6 months from the time of deposit.