Auto Renewal of Fixed Deposit
Fixed Deposits are the most traditional and safe way of investing your money in today's volatile market. The Fixed Deposits require investing a lump sum amount for a specific period to earn steady returns. People also opt for monthly fixed deposits, which can cover their expenses and keep their savings intact. But if you wish to not withdraw the matured amount and want to opt for Auto Renewal Fixed Deposit, you can ask your bank. You should know certain important things before opting for auto-renewal to earn profits more efficiently.
This article will provide you with all the necessary information regarding Auto-Renewal Fixed Deposit:
Ways to Renew a Fixed Deposit
When your fixed deposit matures, you have two options for renewal: Automatic and Manual.
- Auto-Renewal FD: Auto-renewal occurs only when the investor provides the bank or financial institution with a standing instruction. You can choose this during FD setup or the FD term. Upon maturity, the bank will automatically renew the FD for the same term at the prevailing interest rate. Remember that the current FD interest rate might be higher or lower than the previous rate, making auto-renewal subject to market fluctuations.
- Renewal by the FD Holder: For manual renewal, the investor must visit the bank branch in person or renew online. This process is necessary when the FD matures, so investors need to keep track of their fixed deposit details. If the investor renews manually, the bank will do so for the same term and at the same interest rate. The current interest rate could differ from the previous rate, impacting your renewal decision.
What is Auto Renewal of Fixed Deposit?
Fixed Deposits are automatically withdrawn or renewed when they complete the maturity period. However, the previously matured one should match the Auto Renewal Fixed Deposit period and the rate of interest of the current one. It depends on your requirement for money whether you want to opt for Auto Renewal of your Fixed Deposit.
Benefits of Auto Renewal Fixed Deposit
Auto Renewal Fixed Deposit accounts come with several advantages:
- You are relieved from the hassle of dealing with paperwork and documentation when renewing your fixed deposit.
- Opting for FD auto-renewal can earn you an additional interest rate on top of the base rate.
- Auto-renewal saves you time and effort, as the process is automated and convenient.
- By renewing your FD on time, you ensure continuous interest earnings without disruptions.
Key Considerations for FD Renewal
Besides the advantages that come with Auto Renewal Fixed Deposit, there are important factors to keep in mind when making this decision:
- Investment Objectives: Your investment goals tend to change as you age, so it's crucial to align them with your FD renewal choice. For example, if you seek high returns regardless of risk, auto-renewal may not be suitable. However, if you're approaching retirement, renewing your FD could be wise, as it offers stable returns with minimal risk.
- Current Interest Rates: The prevailing interest rate trend is important in your FD renewal decision. If the current interest rate is higher than what you initially locked in, it may be cautious to delay renewal. Contrarily, when interest rates are decreasing, renewing your FD becomes a better option.
- Financial Obligations: Consider your immediate financial needs before opting for FD renewal. If you anticipate substantial expenses due to emergencies, it's advisable to hold off on renewal. However, if no major expenses loom soon, renewing your FD is a viable choice.
Key Fixed Deposit Renewal and Withdrawal Terms
The following terms provide essential insights into the Fixed Deposit renewal and withdrawal terms:
- Withdrawal: Upon maturity, the initial deposit, along with the accrued interest, can be withdrawn by the investor.
- Premature withdrawal: Premature withdrawal refers to withdrawing a deposit before its intended maturity date. Some banks may impose a penalty for this action.
- Renewal: When a deposit holder desires to continue their deposit for the same duration after it matures, this is known as renewal.
- Auto-Withdrawal: Auto-withdrawal is when a bank or NBFC automatically transfers the maturity amount (comprising the principal and interest) to the customer's savings account at the deposit's conclusion.
- Auto-Renewal: In cases where a depositor has issued instructions, the Auto Renewal Fixed Deposit happens for the same duration at the prevailing interest rate.
Process after FD is Not Renewed or Claimed
If the fixed deposit isn't renewed or claimed, the bank typically doesn't renew it automatically. Usually, as the maturity date approaches, the bank sends a reminder to you. Therefore, the possibility of not claiming a deposit is occasional.
If you opt against auto-renewal or fail to withdraw the funds, the bank proceeds to transfer the matured amount to your bank account. Common methods for this transfer include National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS). In cases where electronic transfers encounter issues, the bank will issue a check to you.
Fixed Deposit Withdrawal
Withdrawals from a fixed deposit can occur in two ways:
- Upon Maturity: When the FD reaches maturity, you can withdraw the deposited amount and the accrued interest. The choice of auto-withdrawal is available, where the bank will transfer the maturity proceeds into your savings account. Or, you can manually withdraw upon maturity. In this case, the bank will return the principal and interest when you initiate the withdrawal. You need to monitor your term deposits to facilitate this process.
- Before the Maturity Date: To address unexpected expenditures, you can decide to withdraw funds from your FD prematurely. It is important to note that if you withdraw before maturity, you may be liable for a penalty fee. The calculation of this penalty is a percentage of the agreed-upon FD interest rate. When an early withdrawal happens, the bank deducts the penalty from the total interest and credits the remainder to your savings account. Penalties for early withdrawal generally range from 0% to 1% for most banks.
Conclusion
Fixed Deposits are a safe choice if you don't want to invest in volatile market schemes. Auto-Renewal Fixed Deposit offers some key benefits that can help you achieve your financial goal, but remember to consider certain factors too before auto-renewing your FD. Investing money is vital for safeguarding your future and loved ones, so make decisions mindfully.