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Auto Renewal of Fixed Deposit(FD)

In India, fixed deposits are the most popular and desired investment choice. The amount of money invested and the duration of the deposit are entirely up to the investor. However, in order to address specific crises, investors may need to withdraw their funds earlier than planned. Also, there are times when the investor does not require the funds once they have matured. In such circumstances, banks allow investors to take their money out early or auto-renewal of fixed deposits. 

Methods of Renewal of a Fixed Deposit

Fixed deposits could be renewed by the FD holder either automatically or manually once they reach maturity.

Auto-Renewal FD:

Only when the investor gives the bank or financial institution a standing instruction does the fixed deposit automatically renew. The investor can choose auto-renewal at the time of FD investment or at any time throughout the term of the FD. When the FD matures, the bank will automatically renew it for the same term at the current interest rate. The current FD interest rate may be greater or lower than the FD's previous rate. As a result, if interest rates fall, auto-renewal may be detrimental.

Renewal of the FD by the Holder:

When an investor renews his or her FD, he or she must do so manually, either in person at the bank's branch or online. The FD must be renewed at the end of the term. As a result, they must maintain a record of their fixed deposit investments. If the investor chooses to renew the FD, the bank will do so for the same term and at the same interest rate. The current interest rate could be higher or lower than the FD's previous rate.

What is the FD Auto-Renewal?

FDs can be automatically renewed or withdrawn when they reach maturity. The auto-renewal duration and interest rate must be the same as the one that has already matured. The decision to auto-renew the deposit should be based on the immediate need for funds.

How to Renew an FD?

An FD can be renewed or withdrawn when it reaches maturity.

The renewal clause is provided as an auto-renewal feature, in which the bank or financial institution would automatically renew your deposit for the same term and interest rate upon maturity. This is a great option if you've put money in without knowing what you'll do with it.

Essential FD Renewal and Withdrawal Terms

The term below will show you the most important terms that you need to know for the Renewal and Withdrawal of your fixed deposit:

Withdrawal:

When a term deposit matures, the principal invested, as well as the income generated, can be withdrawn.

Premature withdrawal: 

Premature withdrawal occurs when a deposit is withdrawn before its maturity date. Some banks may levy a fee as a result of this.

Renewal: 

If a deposit holder wishes, she or he can renew the deposit for the same term when it matures.

Auto-Withdrawal: 

When a bank or NBFC immediately credits the maturity amount (principal + interest) to the customer's savings bank account at the end of the deposit term, this is known as auto-withdrawal.

Auto-Renewal:

If a depositor has given the bank instructions, the deposit will be automatically renewed for the same tenure at the current interest rate.

 

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What Happens if the FD is Not Renewed or Claimed?

The bank does not renew the deposit account if the depositor does not offer the maturity directive for auto-renewal. When the maturity date approaches, the bank normally notifies the depositor. As a result, failing to claim the deposit is a rare occurrence.

If the depositor does not choose auto-renewal or does not remove the funds, the bank sends the maturity amount to the depositor's bank account. National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS) are the most common methods of transfer (RTGS). In the event that an electronic transfer fails, the bank will issue a check to the investor.

Withdrawal of the Fixed Deposit

There are two ways to withdraw the FD:

1) At Maturity: After the FD matures, an investor can withdraw his or her money as well as the interest collected. Investors can choose to have the FD auto-withdrawal, in which case the bank will deposit the maturity proceeds into the investor's savings account. Alternatively, investors can choose to manually withdraw the FD when it matures. In this situation, the bank will reimburse the investor's principal and interest when the investor withdraws. Investors must, however, keep track of their term deposits in order to withdraw their funds.

2) Before Maturity Date: Investors can choose to take money out of their FD early to cover any unexpected expenses or liquidity needs. Investors must, however, incur a penalty if they withdraw their FD investments early. The penalty is usually in the form of interest on the FD interest rate that was agreed upon. The bank would deduct the penalty from the collective interest and credit the remainder to the investor's savings account if the withdrawal is made prematurely. For most banks, the penalty ranges from 0% to 1%.

Comparison of FD rates

Name
Tenure
Highest Interest Rates
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FAQs

Q1. Is it possible to renew my FD online?

Yes. If you started your deposit account online, you could also renew it through net banking or mobile banking.

Q2. What exactly is maturity instruction?

All banks and NBFCs require maturity instruction when purchasing fixed-income security. Instructions for auto-renewal of the term deposit might be specified.

Q3. What is the best way to 'break' an FD?

You could close the term deposit before the agreed-upon time and have the monies credited to your bank account if you have a financial emergency.

Q4. What is the FD auto-renewal interest rate?

You would have automatically enrolled in the same kind of FD for another five years and at the same rate if you had chosen auto-renewal.

Q5. How do I stop my fixed deposit from renewing automatically?

You must notify the bank before your FD matures if you do not want it to automatically renew.

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