What is FD Auto-Renewal?
Picture a piggy bank that multiplies the money on its own! That's the same thing as an FD renewal. When you deposit your money in a Fixed Deposit account, your money will continue to grow with the help of the interest the bank offers.2 After a specific period, the bank asks, "Would you like your money to keep growing for another period?" If you say yes, it is an FD renewal! Your money stays secure and grows as per the interest rate applicable at the time of the renewal.
Methods of Renewal of a Fixed Deposit
When your Fixed Deposit comes closer to the maturity period, you can keep the amount as it is. There are two main types of Fixed Deposit renewal methods:
Auto-renewal Fixed Deposit
With the help of auto-renewal Fixed Deposit, you can ask the bank to renew your FD without waiting for your approval. The bank will automatically re-deposit your money at the current interest rate.1 This could differ from what you were getting earlier, but the money will be deposited again without touching anything from it.
This method involves you making the renewal yourself. You must fill out and submit a Fixed Deposit renewal application by visiting a bank or using an online process. If you choose this method, you must keep track of your FD and when it ends. This method allows you to check the current interest rates and deposit again after making an informed decision.1
Benefits of Auto-Renewal
Let’s take a look at how auto-renewal helps:
- Easy Process: The bank will renew the FD for you. This saves your time and effort.
- Steady Growth: Your money grows at a steady pace as the deposit is submitted on the same terms as the initial investment. The current interest rates at the time of renewal will be applicable.
- No Missing the Renewal Date: You can easily forget your renewal date, but with auto-renewal, you need not keep track at all!3
Why do Banks Provide Auto-Renewal Facilities?
Automatic FD renewal saves you time and effort. It benefits both you and the bank. For banks, it helps improve the customer experience and engagement. It enables you to build a long-term relationship with the customers, especially when they do it every year without fail! 1
For customers, this facility offers convenience and peace of mind.
Important Considerations Before Opting for Auto-Renewal
Before choosing the auto-renewal method for your Fixed Deposit, ensure you know the following things:
- Interest Rate: Check whether the bank's interest rate is good enough for you to collect enough savings in the long run. You can do this by using interest rate calculators for FD.
- FD Goal: Knowing your FD goal is important when deciding whether you need an auto-renewal Fixed Deposit or a manual one. 3
- Understand the Renewal Process: To avoid surprises, you must understand the lock-in period and how your FD will be automatically renewed.
Essential FD Renewal and Withdrawal Terms
Let’s understand the following FD-related terms for a better understanding of the withdrawal and renewal process:
Withdrawal
| This means the money you withdraw from the account after the maturity period (the end of the FD term). 1
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Premature Withdrawal
| When you take out the money before the end of the maturity period.4
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Renewal
| You can re-deposit the money with interest in the same FD account when the FD period ends.1
|
Auto Renewal
| When you choose to let the bank renew your deposit automatically for the same tenure at the current interest rate after the maturity period.4
|
Auto Withdrawal
| You automatically get the FD amount with interest in your bank account at the end of the deposit term.1
|
Conclusion
In conclusion, the auto-renewal feature of Fixed Deposits (FDs) offers a simple approach to maintaining continuous growth in savings. This mechanism provides an easy, no-touch approach once the maturity period has passed, allowing uninterrupted interest to build up. However, it is important to consider current interest rates before approving auto-renewal. 1
Depositors must check with their bank for auto-renewal terms to avoid unpleasant surprises. Although auto-renewal makes managing your FD easier, a thorough understanding of how it works is important to facilitate effective financial planning.
FAQs
Can I renew my FD online?
Yes, you can renew your FD online. Various NBFCs and banks offer this facility via a website or app.
What is auto-renewal of a fixed deposit?
Auto-renewal in terms of a Fixed Deposit means that you are putting all your money, along with the interest gained, again in an FD. The bank does this for you during an auto-renewal process, and you don’t have to worry about it.
Is there a penalty for not renewing my FD on time?
No, not renewing FD will simply transfer funds to your bank account.
How to check if my FD has auto-renewal enabled?
Checking your FD documents will help you understand whether you have opted for this facility or not.
Will the interest rate change after FD renewal?
It is possible that the interest rate will change if the bank opts to do so, but this will affect all FD holders, not just you.
Can I break my renewed FD before maturity?
Yes, but you have to pay a pre-maturity fee or a penalty.
Can senior citizens open FDs with higher interest?
Yes, although this depends on the bank you choose. It is always recommended to check and compare interest rates before opening an FD.
What is the process of closing FD?
You usually have to submit an FD closure request or go to the bank and submit a physical form for the same.
What is the charge for closing an FD?
Closing charges vary from bank to bank, so you can visit the bank or ask customer care for specific information.
How can I withdraw my FD after maturity?
Upon maturity, funds from the FD are directly transferred to your bank account.
References:
- https://groww.in/fixed-deposits/auto-renewal-fixed-deposit
- https://tapbonds.com/blog/fd-renewal-and-withdrawal
- https://www.fibe.in/blogs/auto-renewal-of-fixed-deposit/
- https://www.schoolofmoney.co/blog/understanding-fd-auto-renewal-and-repay
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