Auto-Renewal of Fixed Deposit

Renewals are the only option if you want to stay invested in FDs beyond the maturity period. If such is the case, you must start by filling out the fixed deposit renewal application. There are two ways to do this – you share a standing instruction with the bank asking them for FD auto-renewal or request the bank for your FD renewal on maturity.

The renewal of fixed deposits has certain benefits:

• You can continue saving funds. Continually depositing a certain amount will prevent unnecessary spending, ensuring wealth creation.
• The accumulated corpus will generate interest income, guaranteeing a steady income for you.

There are two ways of renewing the FDs – automatic and manual. Let us understand how both approaches work.

Auto-Renewal
Auto-renewal of an FD can only be done if you give standing instructions to the bank or the Non-banking Financial Company (NBFC). You can choose auto-renewal while opening the account or anytime during the tenure. The bank will renew the deposit account the day your term ends with the same tenure as before. However, prevailing interest rates at the time of renewal will apply.

Renewal by the FD Holder
Besides the auto-renewal of the FD, you have a choice to renew your account at your ease. Banks provide offline and online services to do so. You can consider either of them at your convenience.

Fixed Deposit renewal via offline mode
The steps to renew your fixed deposit account offline are as follows:

• Visit the bank or NBFC where you opened your account.
• Ask for a fixed deposit renewal application form.
• Select the duration if you wish to alter it. If not, then enter the same tenure as your previous investment.
• Submit your deposit certificate with a filled application form and provide additional documents (passbook, etc.) if required.

Once the process is completed, the bank will give you a new deposit certificate.

Fixed Deposit renewal via online mode
You can opt for online fixed deposit renewal via your bank’s official website or mobile application. Here is the process for online renewal:

• Suppose you have an account with the State Bank of India (SBI). Log in to your SBI account.
• Select ‘Deposit Renewal’ from the ‘Requests’ section.
• You will find two options for renewal:
  1. Renew the total matured amount.
  2. Renew the principal amount only: If you use this option, the bank will credit your interest amount in your account.
• Tap on ‘Proceed.’ It will direct you to a new page featuring the renewal options.
• Here, you will have to choose the deposit type:
  1. Cumulative
  2. Non-cumulative
• Select your account type: Ordinary or NRO (non-resident ordinary).
• Enter the desired renewal period in terms of months and days. Click ‘Submit’.
• You will be directed to a confirmation page. You can verify the renewal details here.

Suppose you haven’t opted for auto-renewal of the fixed deposit and forget to renew on time. In that case, the proceeds will be moved to your savings account and it will attract interest rates applicable to a savings account or contracted rates, whichever is lower.

Further, your account will be classified as unclaimed by the RBI when there has been no transaction for more than ten years. Proceeds not claimed by depositors are moved to the Depositors Education and Awareness Fund (DEAF) under the RBI’s jurisdiction.

You need to know the following essential terms before investing in an FD.

1. FD Withdrawal: On maturity, the investor can withdraw their invested principal and the interest.
2. Premature Withdrawal: A premature withdrawal is when an investor liquidates their investment before maturity. Some penalty charges may apply in case of an early withdrawal.
3. Renewal: An investor can opt to renew their FD for the same tenure after maturity instead of withdrawing their investment.
4. Auto-Renewal: If a fixed deposit holder has provided instructions to the bank, the deposit will automatically renew at the prevailing interest rate for the same duration.
5. Auto-Withdrawal: When a bank or non-banking financial company (NBFC) automatically transfers the maturity amount (comprising principal and interest) to the investor's savings bank account after maturity, it is called auto-withdrawal.

The following are the benefits of auto-renewal of an FD:

• Easy Renewal Process:
  • Auto-renewal eliminates the need for physical visits or online procedures, providing investors with a convenient, seamless experience.
• Regular Earnings:
  • Investors can keep their funds continuously invested through auto-renewal, ensuring a consistent flow of interest earnings without any breaks.
• Prevention of Defaults:
  • Auto-renewal is like a safety net that prevents you from forgetting to renew your fixed deposits (FDs). It ensures that your money doesn't end up in an account where it doesn't earn any interest when your FD matures.

There are two ways to withdraw money from a Fixed Deposit. These are as follows:

1. Premature Withdrawal
   Fixed deposits offering a premature withdrawal option let you close your account before the term ends. This can be helpful when you require liquidity. But you need to pay the penalty to the bank for withdrawing the money early. The penalty usually ranges between 0.5 and 1%. If you withdraw your money within seven days of opening the account, the bank won't pay you interest.
2. On Maturity
   Once the fixed deposit (FD) reaches maturity, investors have two options for accessing their money and the accrued interest. They can opt for auto-withdrawal, where the bank automatically transfers the maturity amount to their savings account. On the other hand, investors can choose manual withdrawal, wherein they withdraw the FD upon maturity, and the bank reimburses the principal and interest. Investors must stay informed about their term deposits to ensure timely access to their funds.

Fixed deposits can prove to be an attractive choice for risk-averse investors exploring ways to diversify their portfolios. Further, FDs can be used as collateral for loans.

Hence, continuing your investment in FD is a wise decision if you have surplus money. Nevertheless, one inherent problem with FD renewal is that your money gets locked for a fixed term.

While premature withdrawal is allowed, it may attract a penalty depending on the bank where your account is being held.

Moreover, the deposit will carry the prevailing  rate of interest on the date when it is renewed. So, if the rates go down, your returns will be impacted. Hence, determine whether auto-renewal is the right option only after considering all the pros and cons.