Fixed deposits (FDs) lock-in your investment for a fixed tenure at a pre-given interest rate. Your investment keeps earning stable returns during the deposit tenure. Given the benefits of FDs as a liquid asset and their steady returns, most investors prefer staying invested even after the maturity date. To simplify such renewals, investors can opt for the FD auto-renewal option when opening the account.
Auto-renewal of fixed deposit
The auto-renewal feature in an FD account lets investors automatically renew their fixed deposits upon maturity. Offered by banks and other financial institutions, FD auto-renewals reinvest the corpus for the same tenure as the original deposit but at the prevailing interest rate. Depositors need to provide standing instructions to the bank for such auto-renewals.
How to renew a fixed deposit
Your FD account can be renewed once it reaches maturity. Depending on the financial institution in question and the type of FD offered, you can renew your fixed deposit account in one of the following ways:
Also Read: Right Time to Invest in a Fixed Deposit
Automatic FD renewal
FD auto-renewals are permitted when the depositor gives the bank a standing instruction to renew the investment on maturity. You can choose the auto-renewal FD option at the time of opening the account or at any time during the course of its tenure. With the auto-renewal option enabled, the bank will automatically reinvest your FD funds for the same tenure at the current interest rates.
Manual FD renewal
If the financial institution does not offer auto-renewal on FD accounts, you can renew them manually at the end of the term. While most banks allow online FD renewals, you can also visit your home branch to renew the FD in person. You can choose to renew the FD for the same term or a longer duration based on the available options and prevailing interest rates.
Also Read: How repo rate impacts FD rates
FD auto-renewal benefits
- Convenience: The FD auto-renewal mandate is a boon for investors with multiple FDs. With auto-renewal enabled, investors do not need to remember the maturity dates for different FDs. Moreover, auto-renewals eliminate the need to physically visit a bank branch or renew your deposit online. This saves both time and effort, ensuring a convenient and hassle-free experience.
- No documentation: Auto-renewal of FDs does not require any additional paperwork or documentation. You can simply tick the ‘Auto Renew’ option on the FD form to avail of this facility.
- Continued earnings: Depositors can keep their funds invested in the FD account to consistently earn interest without any breaks. The compounding interest benefit helps investors maximise their earning potential.
- Prevent defaults: Your matured FD corpus is transferred to the linked savings account or a non-interest-bearing account if you forget to renew it. Auto-renewal of FDs prevents this scenario. It functions like a safety net, keeping your funds invested for continuous interest income without any interruptions.
Things to consider when auto-renewing your FD
Despite these benefits, auto-renewal of FDs may not always be the best option. Apart from understanding the new rules for auto-renewal of FD at your bank, you should also consider these factors:
- Interest rates: While FD auto-renewals bring unmatched convenience and break-free interest earnings, you should carefully consider the prevalent interest rates offered by the bank. If interest rates are rising, it may be wise to withdraw the funds and manually invest them when rates peak. You also compare the interest rates of different banks before investing in the new FD.
- Tenure: For accounts with an auto-renewal mandate, most banks reinvest the maturity sum for the original term duration. Depositors usually cannot adjust this term, and it may not be the tenure offering the highest interest rates. In such cases, investors can lose out on better returns.
- Liquidity needs: You should carefully assess your liquidity needs when opting for the auto-renewal facility. If you anticipate sizable expenses around the maturity period of the FD, avoid choosing the auto-renewal option. Withdrawing funds for immediate expenses after renewal will attract penalty charges and reduce your overall returns.
- Investment goals: Since our investment goals evolve with age and life stages, so should our investments. If you are a young investor eager to maximise returns and accept higher risks, it may be better to explore market-linked investments instead of auto-renewing your deposit. However, if you are nearing retirement, the stable returns and low risks associated with FDs might be the better choice.
Conclusion
The auto-renewal mandate simplifies and streamlines the FD renewal processor for investors. If you have multiple FDs and cannot track your maturity dates, it is best to opt for the FD auto-renewal facility. However, it is important to consider the pros and cons of auto-renewals before deciding to lock in your investment for a long duration.
Before committing to an auto-renewal FD, you also need to check the interest rates available on the account. For instance, corporate FDs like the Bajaj Finance FD help you maximise returns with high interest rates of up to 8.85% p.a. You can also enjoy ample investment flexibility with a number of tenure options and payout frequencies.
