Fixed deposits (FDs) are widely used by investors who want to keep their money for a fixed period while earning a predetermined interest rate. But sometimes, an FD may mature without the investor noticing.
This can raise several questions: Does the bank automatically renew the FD? What interest is earned if the maturity amount remains with the bank? And what happens if the money is left unclaimed for 10 years or longer?
What Happens When an FD Matures?
When a fixed deposit reaches its maturity date, the bank processes the deposit according to the maturity instructions provided by the customer.
If the FD was opened with an auto-renewal facility, the deposit may be renewed for the applicable tenure at the prevailing interest rate. If the maturity instructions specify that the money should be credited to the linked savings account, the bank will process the payment accordingly.
However, if the FD matures and the amount remains unpaid, it may be treated as an overdue deposit. In such cases, interest is generally paid at the lower of the applicable savings account interest rate or the contracted FD rate.
If a renewed FD is broken before its new maturity date, the bank may apply the applicable premature withdrawal rules, including an interest adjustment or penalty.
What If No Maturity Instructions Were Given?
If an FD matures without the amount being paid out or renewed, the funds may remain with the bank as an overdue deposit.
Under the applicable RBI rules, interest on a matured but unpaid domestic term deposit is calculated at the lower of the savings account interest rate or the contracted interest rate of the matured FD.
For example, consider an FD of ₹5 lakh that was earning 7% annual interest. If the FD has matured and the applicable savings account interest rate is 3%, the lower rate would apply to the overdue period. In this example, the applicable interest would therefore be 3%.
What to Do If Your FD Has Been Automatically Renewed
If you discover that your FD has already been renewed but you needed the money after its original maturity, contact your bank as soon as possible.
First, check the date on which the FD was renewed and find out the interest rate applicable to the new deposit. If you need to withdraw the money before the renewed FD matures, you may have to close the deposit prematurely.
Banks may impose a penalty or make an interest adjustment for premature withdrawal, depending on their applicable rules. The RBI framework allows banks to charge penalties for premature withdrawal, with such charges typically ranging from 0.5% to 1%.
What Happens If the Money Remains Unclaimed for 10 Years?
If a deposit remains unclaimed or inactive for 10 years, the bank transfers the amount to the Depositor Education and Awareness (DEA) Fund in accordance with RBI guidelines.
However, such a transfer does not mean the depositor permanently loses the money. The depositor or eligible beneficiaries can still claim the amount from the concerned bank later, without a time limit.
The RBI’s UDGAM platform can also help people search for unclaimed deposits when they have forgotten details of an old bank account or FD. The platform provides a way to search for unclaimed deposits held across participating banks. However, the actual claim has to be made directly with the concerned bank, not with the RBI.
How to Avoid Forgetting an FD
When opening a fixed deposit, investors should check not only the interest rate but also the maturity instructions and whether auto-renewal has been selected.
It is also useful to save the FD maturity date in a mobile calendar and set a reminder about a week before the due date. If you want to continue the deposit, check the prevailing FD interest rate before renewal. If you need the money, make arrangements to withdraw it around the maturity date.
Disclaimer: This article is for general informational purposes only. FD maturity, interest payment, premature withdrawal and unclaimed deposit rules may vary according to applicable RBI regulations and the policies of individual banks. Customers should confirm the latest terms with their respective bank before taking any financial decision.