A fixed deposit offers predictable returns over a specified tenure, making it a preferred investment option for traditional or risk-averse investors. However depositors may sometimes fail to claim their maturity proceeds on time if they overlook bank notifications or do not receive them at all.
In such cases, the accumulated corpus does not simply disappear but the returns on the amount after maturity may differ from the original FD rate, depending on the bank’s rules and whether the deposit was set up for automatic renewal.
What happens to an FD after maturity?
A matured fixed deposit may be repaid to the depositor or renewed depending on the instructions recorded for the deposit. Here’s what happens to your money in different scenarios if you do not take any action post maturity:
- Automatic renewal: Some may carry an instruction for automatic renewal, wherein it can be continued according to the applicable renewal terms agreed upon during opening of the account.
- Credit of maturity amount: If the deposit carries a repayment instruction, the maturity amount may be credited to the depositor’s registered bank account according to the specified bank’s process.
- Interest on unclaimed proceeds: The Reserve Bank of India’s () directions state that if the maturity proceeds remain unpaid, the amount will earn interest at the applicable savings account rate or the contracted rate on the matured deposit, whichever is lower.
What if the depositors passes away?
If no action is taken within 10 years from the FD’s date of maturity, it is classified as an “unclaimed deposit” and is transferred out of the bank.
Therefore, as per RBI rules, on the last working day of the month following the month in which the 10-year period is completed, the bank calculates the total outstanding amount and transfers it to the depositor education and awareness (DEA) fund maintained by the central bank.
This does not mean the money is gone. The RBI simply serves as the custodian of these unclaimed deposits, and the depositor continues to have the right to claim the principal along with the applicable interest rate determined by the central bank until they or their legal heir claims it.
In case of the depositor’s demise, the nominee or must provide evidence of the person’s death along with their identification documents. The financial institution then facilitates the transfer of the fixed deposit amount to the nominee, ensuring a seamless transition of the investment.
When should you renew your FD?
You can choose to renew your their fixed deposit if you do not need the money in the near future and want to continue earning returns.
However, before renewing you must compare the bank’s latest FD interest rates with the rate you earned on your previous deposit, as the new rate may be higher or lower. Also consider the tenure, premature withdrawal penalties and whether you may need access to the funds before maturity.
If you have short-term financial goals or need the money for an emergency, locking it into another long-term FD may not be the best option. For such cases, you can instead keep the funds in a savings account or split them across deposits with different maturity dates to maintain liquidity.
Before deciding, compare rates offered by different banks and check whether automatic renewal will apply to your deposit, including the tenure and interest rate at which it will be renewed.