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Most Indian savers are conservative. Fixed deposits (FDs) or recurring deposits (RDs) are their first brush with investments. While it is the safest and simplest investment, there are every possibility that investors may lose track of when the FDs are being matured. They may not know the auto-renewal option too. What happens to your FDs if you don’t claim it? We have it covered for you.

Overdue fixed deposits

If your fixed deposit or a recurring deposit mature and proceeds are unpaid, it moves to an ‘overdue state’. “This primarily happens when customer has not provided a maturity instruction to the bank, or the customer does not have an existing savings/current account with the bank where the term deposit has been opened,” said a Bandhan Bank spokesperson.

If you maintain a savings account with the bank where you have opened your FD, the FD maturity amount moves to the savings account if you don’t claim it.

“The matured amount would then earn applicable saving bank interest rate. Some depositors also opt for FD auto-renewal for the same specified tenure. When this happens, a new FD is booked at the prevailing rate of interest. If you do not instruct the bank for auto-renewals, then the FDs are renewed for a year by the bank at the existing interest rates,” said Adil Shetty, founder, Bankbazaar.com.

He explained further with an example: if you have an FD for three years tenure and you forget to intimate the bank about auto-renewals post maturity, the bank will then renew the FD for a tenure of one year. Auto-renewal may prove disadvantageous if the bank has reduced its interest rates. In case of a premature withdrawal, you may have to shell out interest penalty charges.

What interest rate do you earn on overdue FDs?

As per previous regulations, the FD maturity amount would start earning savings interest rate. However, earlier this month, the Reserve Bank of India (RBI) introduced a new rule.

“As per the recent revision in regulatory guidelines, the term deposit amount that is at overdue state will now attract rate of interest as applicable to savings account or the contracted rate of interest for the matured term deposit, whichever is lower, for the period for which the term deposit is in overdue state,” said the Bandhan Bank spokesperson.

In case of corporate FDs, some companies consider compulsory redeem in the absence of maturity instruction.

“In that case principal along with earned interest is refunded to the investor in his bank account as provided. As per regulations, if an investor is not claiming the amount at the time of maturity, in that case the bank renews the FD for the same tenure with prevailing rate of interest,” said Rajan Pathak, co-founder and MD of Fintso.