FD: Fixed deposits (FDs) are typically considered secure investments where the money is placed for a specific period with a predetermined interest rate. However, there may be instances where the FD matures without the investor realizing it. This leads to questions such as what happens to the funds in such a scenario. Does the FD automatically renew itself? If the funds are left untouched in the bank, what amount of interest will they accumulate? And if there is no activity on the account for a decade, what will be the fate of the money?
What occurs to an FD post-maturity?
Once the FD reaches its maturity date, the bank will settle the amount based on your instructions for maturity. If you have opted for the auto-renewal feature, the FD will be renewed, and the new deposit will receive the prevailing interest rate. Alternatively, if the funds are set to transfer to your savings account upon maturity, the bank will follow its procedures to credit the amount to that account.
If auto-renewal is enabled, the FD can be renewed at the new applicable FD interest rate. If maturity instructions specify credit to the account, the maturity amount may be credited at the applicable account rate. If the FD matures but the amount remains unpaid, it may be treated as an overdue deposit, with interest at the lower of the savings rate or contracted FD rate. Prematurely breaking a new FD will attract interest adjustments or penalties as per the bank’s policy. If the amount remains unclaimed for 10 years or more, it may be transferred to the DEA Fund, though the money can still be claimed later through the bank.
What if no instructions were given?
This situation is a little different. If the FD matures and the amount is not paid, the amount may remain with the bank as an overdue deposit. As per the current RBI regulations, interest on such matured but unpaid domestic term deposits is earned at the lower of the applicable savings account interest rate or the contracted interest rate of the matured FD, whichever is lower.
Simple calculation for Rs 5 lakh FD
Suppose you opened an FD of Rs 5 lakh at 7% annual interest. After the FD matured, the money remained in the bank, and the applicable savings account rate at that time was 3%. If 3% is less than both, then interest will be paid at the same rate for the overdue period.
What should you do if your Fixed Deposit (FD) is automatically renewed?
If you find that your FD has been auto-renewed, and you needed the funds upon maturity, take immediate action by getting in touch with your bank. Start by determining the renewal date of the FD and the interest rate applicable to the new FD.
In cases where you need to withdraw the funds, you may have to prematurely break the FD. As per regulations from the Reserve Bank of India (RBI), banks may charge a penalty for early withdrawals, typically ranging from 0.5% to 1%.
What happens if the funds are left untouched for a decade?
Per RBI guidelines, if a deposit remains inactive or unclaimed for 10 years, the bank will transfer it to the Depositor Education and Awareness (DEA) Fund.
This transfer does not mean the money is lost forever. If you or your beneficiaries locate the funds in the future, you can reclaim them from the respective bank without any time constraints.
Utilize the UDGAM platform to track unclaimed funds.
If you suspect you have forgotten funds or an old FD in a bank but cannot recall the bank or account specifics, the RBI’s UDGAM platform can be helpful. This portal facilitates searching for details regarding unclaimed deposits across various banks. However, the funds must be claimed directly from the relevant bank, not from the RBI.
A simple method to prevent losses:
When setting up an FD, consider not only the interest rate but also where the funds will go upon maturity and whether auto-renewal is activated. Record the maturity date of your FD in your mobile calendar and set a reminder a week before maturity. If you plan to retain the funds in the FD, verify the current interest rate. Withdraw the funds at maturity if needed.