Fixed Deposits (FDs) have long been a favoured investment option for individuals looking to secure their savings while earning attractive interest rates. However, once the maturity period of an FD is reached, investors face a crucial decision – whether to renew their FD or withdraw the funds. In this blog, we will delve into the concept of fixed deposit renewal, focusing on auto-renewal, the renewal process, and its important terms.
What is Auto-Renewal of Fixed Deposit?
Auto-renewal is a convenient feature offered by most financial institutions, where the fixed deposit is automatically renewed for the same tenure upon maturity unless specified otherwise by the account holder. Instead of withdrawing the principal amount, the FD is re-invested for another term, and the interest earned is compounded over time.
How to Renew Your Fixed Deposit?
Renewing your fixed deposit is a simple process that can be initiated through various channels. Here’s a step-by-step guide to help you through the renewal process:
Step 1: Assess Your Financial Goals
Before proceeding with the renewal, assess your financial goals and needs. Consider whether you require immediate access to the funds or if you can afford to reinvest them for a longer duration.
Step 2: Contact Your Bank or Financial Institution
Contact your bank or financial institution before the FD maturity date. You can do this through online banking, a visit to the branch, or a phone call to their customer service.
Step 3: Specify Your Renewal Option
Inform the bank about your renewal decision, whether you want to opt for auto-renewal or manual renewal.
Step 4: Provide Necessary Documents
If you choose manual renewal, provide the necessary documents as requested by the bank to complete the renewal process.
Step 5: Verify Renewal Terms
Verify the renewal terms, such as the new interest rate and tenure, before finalising the renewal.
Ways to Renew Your Fixed Deposit
1. Auto Renewal
Auto-renewal is an attractive option for those who prefer a hassle-free experience. Once you opt for auto-renewal, you don’t need to keep track of the maturity date or visit the bank to renew the FD manually. The funds will be automatically re-invested, and you will continue earning interest without interruption.
2. Renewal by Holder
In contrast to auto-renewal, some individuals prefer to exercise more control over their FD investments. With renewal by the holder, account holders need to notify the bank about their intention to renew the FD or withdraw the funds before the maturity date. This option allows for greater flexibility in managing one’s finances.
What happens if the FD is not Renewed?
If an FD is not renewed or withdrawn upon maturity, it typically enters a grace period for the account holder to decide. The bank may offer a slightly higher interest rate during this period to encourage renewal. However, if no action is taken during the grace period, the FD may be converted into a regular savings account with significantly lower interest rates.
Important Terms on FD Renewal
To fully understand the process of fixed deposit renewal, it is essential to familiarise yourself with the following terms:
1. Maturity Date
The date on which the FD reaches its full term and becomes eligible for renewal or withdrawal.
2. Grace Period
The period after the maturity date during which the account holder can renew the FD without losing out on the interest earned.
3. Nominee
The individual appointed by the account holder to receive the funds in case of the account holder’s demise.
4. Penalties for Premature Withdrawal
The bank imposes the charges if the account holder withdraws the FD prematurely before maturity.
5. Renewal Interest Rate
The interest rate applies to the renewed FD may vary from the original rate.
Final Word
Fixed deposit renewal is an important decision that impacts your savings and financial stability. Whether you choose auto-renewal or renewal by the holder, carefully evaluate your options based on your financial goals and requirements. The convenience of auto-renewal and the flexibility of renewal by the holder each have their merits, so make an informed choice.
FAQs
No, it is not mandatory to renew a fixed deposit. You can withdraw the funds or continue the FD for another term.
Yes, during renewal, you can choose to change the tenure of your fixed deposit based on the bank’s available options.
No, you won’t lose the interest earned during the grace period. However, taking action within this period is advisable to avoid any disruptions in interest payments.
The ability to partially withdraw during renewal depends on the bank’s policy. Some banks may offer this facility, while others may not.
If you urgently need the funds in an auto-renewed FD, you may have to pay a penalty for premature withdrawal of FD. Check with your bank for the specific terms and conditions.
Disclaimer
This article is solely for educational purposes. Stable Money doesn't take any responsibility for the information or claims made in the blog.
