BackDid you know: an FD may get automatically renewed if unclaimed
If an FD is not claimed, banks can renew it unlimited times or pay the existing savings account rate
Premium
Fixed deposits (FDs) are a popular instrument among Indian investors mainly because of the assured returns and the ease with which an FD can be started and renewed. There are, however, certain rules that come into play for renewals. Here’s how they work. Do remember that these rules do not apply to online FDs as the maturity amount in such cases gets credited automatically to the savings bank account.
Renewal options
When it comes to maturity and renewal, there are three scenarios. First, while starting an FD, the depositor can indicate in the form that after maturity the amount be transferred to a specific savings bank account. The account number and bank details should be provided. Second, the depositor can indicate in the form that the amount be renewed after maturity. The longest tenor for an FD is 10 years. The third scenario is when there is no mention of either of the two. In each of these circumstances, the treatment of the maturity amount and interest calculation differs.
Upon maturity
If the first option is selected, on maturity, the amount automatically moves to the savings bank account mentioned. If the second option is chosen, the matured amount will be reinvested as an FD with a similar tenor of the previous FD and at the same rate of interest. Investors can choose perpetual or a set number of renewals as well.
If nothing is mentioned in terms of transfer of funds or renewal post-maturity, the bank sends a notification to the investor. Some banks also send a demand draft to the address mentioned in the form. As per Reserve Bank of India guidelines, if the investor is tracked within 14 days and wishes to continue with the FD, the deposit can be renewed and interest will be calculated from the very day of the maturity period. So, say, the FD matures on 1 October and the person could be contacted on 10 October. She expresses a desire to renew the FD. The bank will do so effective from 1 October and the interest rate paid will be the existing interest rate effective on 1 October.
Say, the bank informed the FD holder only by the twentieth day after maturity, and the investor expresses a desire to renew. In this case, the bank should ideally pay for the six extra days it took to inform the investor at the savings bank account interest rate on the FD’s maturity amount.
However, if there is no instruction to the bank and it is unable to find the investor within 14 days after maturity, it will automatically renew the FD at the existing rate of interest.
What happens to unclaimed deposits?
If an FD is not claimed, banks can renew it unlimited times or pay the existing savings account rate. But as a practice, if an FD is not claimed for, say, 2 or 3 consecutive tenors, the bank will do its best to contact the investor and seek instructions. If the investor can’t be found, the nominee will be contacted and will be handed over the money.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
