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What should you be aware of before renewing your fixed deposit

By Finserv MARKETS - Aug 28,2019
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Learn about FD renewal

What You Should Know Before FD renewal?

Fixed deposits have long been the bedrock of the investment portfolios of the Indian middle class. They are attractive to investors who have a low-risk appetite and do not mind having their capital invested for a period of 4-10 years. Investors however need to be aware that FDs need to be either withdrawn at maturity or renewed. If the maturity date of your FD is approaching, you may feel confused about whether to renew it or withdraw. If you do not either withdraw or renew FD, the bank or NBFC may auto-renew or auto-terminate it. So it becomes important to take a call on whether to renew or withdraw your FD at maturity. Here are a few things you should know before you make your decision.

FD Renewal: Benefits

  1. Get Additional 0.10% Interest on Renewal – When you renew your existing FD with Finserv MARKETS, you get an additional 0.10% interest on your previous FD rate.
  2. Easy Renewal Process – The FD renewal process with FInserv MARKETS is simple, requiring minimal documentation and paperwork.
  3. Grow Your Savings – FDs are one of the most trusted forms of investment that helps to grow your savings over the long term without risking your capital in unstable and volatile asset classes.
  4. Curb Unneeded Expenses – By renewing your FD and conserving your savings, you ensure that your money is not whittled away in unnecessary everyday expenses.

It should be noted that the RBI guidelines on fixed deposit renewals state that banks are free to auto-renew an FD on maturity at the prevailing rate of interest if the investor does not apply for renewal. Therefore FD renewal at maturity is always the right thing to do. To know maturity value one can make use of FD maturity calculator

What will happen if you forget to Renew your FD?

People often have a mentality of “buy and forget” due to which they might miss opportunities for optimal investment of their hard-earned capital. Consider, for instance, the following two cases:

Case 1: Suppose that you deposited Rs. 5 Lakhs in a Fixed Deposit for a duration of 5 years and at an interest of 10%. At the end of 5 years, the interest rates are likely to have fallen to 8%. If you opted for the auto FD renewal, your bank would transfer your capital into another FD for 5 years and at the same interest rate of 10%, which was there five years back too.

Case 2: Let us consider the same case of Rs. 5 Lakhs at an interest rate of 10% for 5 years again. Suppose you forget the maturity date of your FD and after 1 year, you realize that your FD was to reach maturity last year. You go to your bank and ask the authorities for withdrawal. In such a case, you will definitely lose any interest on the Rs. 5 Lakhs for the extra 1 year. This happens because your account was mentioned closed by the Bank. After all, you didn’t get the renewal of your fixed deposit done.

FD Auto Renewal

  1. When you start an FD with your bank, they come with an auto-renewal of fixed deposit and an auto-termination clause that kicks in once the FD reaches maturity and has not been withdrawn.
  2. Under the auto-renewal of fixed deposit clauses your FD may be renewed for the same term and the same interest rate as the previous FD. This FD auto renewal rule is a good option if you do not have any urgent need for your funds during the next cycle of FD.
  3. Under the auto-termination clause, the bank terminates your FD and transfers the amount into a regular deposit account at the prevailing term deposit interest rate, which will be lower than the FD interest rate.

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FAQs

  • What happens if FD is not renewed?

If you do not renew your Fixed Deposit, it may either be auto-renewed or auto-terminated. In the first case, renewal happens for the same term period and interest rate as the existing FD, while in the second case, it is converted to a regular savings deposit with a lower interest rate.

  • What happens when a fixed deposit matures?

FDs need to be either withdrawn or renewed upon maturity. If not done, they may be auto-renewed or auto-terminated. If you are not immediately in need of the funds, it is advisable that you opt for renewal of fixed deposit by submitting a fixed deposit renewal application.

  • Can I withdraw FD on maturity date?

Yes, you can withdraw your principal amount along with interest upon maturity.

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522