RBI (The Reserve Bank of India) has now came up with a new rule on Fixed Deposit / FDs in Banks. The auto renew of fixed deposit in banks will not anymore be working effective 1 April 2022. Investors has to renew their FDs manually in order to continue receiving higher interest rates.
What is Fixed Deposit?
A fixed deposit, also known as an FD, is an investment type offered by banks, as well as non-banking financial companies (NBFC) to their customers to help them save money. You can invest a sizeable amount of money at a predetermined rate of interest for a fixed period. At the end of the tenure, you receive the lump sum, along with an interest. Banks offers higher rates of interest for a fixed deposit account.
You can choose a fixed deposit for a period ranging from minimum 7-14 days to maximum 10 years. The interest you earn is either paid at maturity or on periodic basis depending on your choice. You are not allowed to withdraw the money before the maturity. If you want to, you have to pay a penalty.
What was the old rule of Bank’s FDs?
Earlier, in banks on maturity of a fixed deposit, if a person do not withdraw the money from his/her FD account, the amount gets fixed again for another term of same duration. The interest that was applicable on that new renewed FD depends on the ongoing interest rate on FDs of that bank on that particular day.
This was good for the customers or investors, as they need not take much responsibility on their fixed deposite maturity and renewal. All were automatically done. Just they need to put their money once and keep earning higher interest rates every year.
The new RBI rule on auto renew of Fixed Deposit in Banks
The new rule effective from 1 April 2022, states that the fixed deposits in banks, will no longer auto renewed after maturity if not withdrawn. Instead it will keep earning interest rate of either savings account or FD, whichever is lower.
This means, if you do not withdraw your money from your FD account after maturity, your amount will not get automatically fixed again as it was earlier. Your money will remain in your FD account but keep increasing at lower interest rate which is in most cases the interest rate of savings account (2% – 3%). Thus if you do not remember your maturity date, you will keep on losing interest unless you deposit that amount again.
This is now not a good news for the customers / depositors as they now need to track all their FDs and its maturity date. Because if you withdraw early, you will have to pay penalty for early withdrawal and if you withdraw late, you will lose interest. So, you need to renew you FD yourself, either by going to bank or my mobile banking or internet banking as soon as your FD matures.
An IT guy who keeps interest in blogging. Started blogging since 2017. He is the owner of the blog wheretosave.in and knowledgebear.com. A family man who loves Travelling, Gadgets and FOOD.