If you’re thinking of investing in India’s most popular investment option, learning about auto-renewal rules that apply to fixed deposits is vital. Once you’ve invested in an FD, you can withdraw your investment or renew it in two different ways:
Auto-renewal saves you from the hassle of remembering the maturity dates and losing out on interest for even one day. To understand when it is right for you, read on.
Auto-renewal, meaning the automatic process where banks or NBFCs renew your investment for the same term, can be a hassle-free process to remain invested in a safe instrument and earn interest.
The manual FD renewal process requires you to be aware of the maturity timeline and give instructions to the issuer. If not, the amount is credited to your savings account. Since its interest rate is not as high as a fixed deposit, you lose out on interest. This can also decrease the value of your funds due to inflation.
To understand why auto-renewal is an excellent way to manage your FDs, see some of the advantages it offers:
Auto-renewals are a smart choice that does not require you to remember maturity dates or take any action regarding your investment.
You can maintain your financial growth at a steady pace as the deposit is booked on the same terms as your initial investment.
With auto-renewal, you can eliminate manual processes, making it more convenient.
A large amount sitting in your savings account doesn’t accumulate as much as it can with an FD.
With FDs, you can build discipline as they prevent you from withdrawing early due to interest rate penalties.
Your unattended fixed deposit will be credited to a savings account which offers a lower rate of interest and inflation will further erode its value over time.
While auto-renewal brings many benefits to the forefront, it is not the ideal approach when interest rates are rising. On maturity, you may be able to invest for a different tenure to benefit from higher rates, which is impossible with auto-renewal.
Even if you have chosen this option, you can change the instructions before the FD matures. So, keeping track of your maturity timeline may be the best way to decide if you want to let your instructions stand for auto-renewal. New rules by the RBI in January 2024, as per circular RBI/2023-24/105 DOR.SOG (LEG).REC/64/09.08.024/2023-24 also aim to increase transparency for these investments. They ask banks to:
Also Read: Term Deposit vs Fixed Deposit
Now that you know how to monitor your investment, assess your approach to the opportunity keeping these factors in mind:
Whether for retirement or other goals like a child’s education, a family vacation or buying a home – invest keeping your objectives in mind. This will help you choose the right FD tenure and even decide if the auto-renewal feature is useful for you.
Understand whether you need to have access to quick funds and then invest. Tax-saver FDs do not allow premature withdrawals before 5 years and other FDs may not allow it before 6 months. See the terms and make sure you have an emergency fund before you choose your FD.
Compare FD rates across financial institutions before you book one. Check their safety ratings to make an informed decision, too.
You must understand banks auto-renew the principal and repay interest to fathom the process better. See if the renewal structure truly suits you by keeping the pros and cons in mind.
Fixed deposits are a very efficient way to embark on financial growth. However, your returns are impacted if you withdraw early. If you need funds during this time, you can apply for a Fibe Instant Personal Loan.
You can get up to ₹5 lakhs with a flexible reimbursement period of up to 36 months. You also have the power to become debt-free before your tenure ends with zero foreclosure charges. To get started, you can download our Personal Loan App or register on our website.
While applying for your FD, you must mention whether you are opting for the auto-renewal option. If you opt for it, the bank will renew the FD automatically. Otherwise, your maturity amount will be credited to your savings account.
There are no specific charges for this facility.
Yes, you can withdraw from the FD even if you have chosen the auto-renewal option. This will affect your returns as it may impact the interest rate applied as per the policies of the financial institution. Check this beforehand.
Yes, FDs can be transferred to another branch of the same bank. File your request and wait for the bank to comply.
Yes, you can opt for this facility by contacting the financial institution and choosing this option.
