Fixed Deposit Auto-Renewal: Key Factors to Consider and Ways to Maximise Returns

Posted on Monday, January 27th, 2025 | By IndusInd Bank

Fixed Deposits (FDs) offer multiple benefits that make them one of the most risk-free and reliable investment options. Some of the advantages are better returns, predictable growth, easy liquidity, and flexible tenures. The insurance coverage of up to ₹5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC) increases their appeal even more. 

On top of these advantages, there is one more benefit, i.e., the auto-renewal facility. It’s a process where the bank automatically renews your matured fixed deposit for the same tenure. The renewed FD will earn interest based on the prevailing interest rate at the time of renewal, not the original rate from the previous tenure. 

Let’s understand the benefits of FD auto-renewal, key factors to consider, and tips to get the most out of your investment.

Fixed Deposit Auto-Renewal: Top Advantages

FD auto-renewal offers multiple benefits, which is why many opt for this option. These include:

Convenience and Automation

The automated feature is highly beneficial for those with busy schedules or managing multiple FDs. There is no need to track maturity dates, visit the bank, or go through paperwork each time. The process is smooth and keeps FD investments active without any gaps.

Avoids Funds Sitting Idle

When an FD matures, the funds may transfer to a savings account, earning only nominal interest. Auto-renewal helps avoid this by keeping your money invested at higher interest rates, preventing gaps with low returns and maximising your overall interest earnings.

Capitalises on Rising Interest Rates

In a fluctuating interest rate scenario, auto-renewal can work in your favour. If interest rates rise around the time of your FD’s maturity, auto-renewal allows you to lock in higher rates automatically. This helps you capture higher gains without having to monitor the market and make reinvestment decisions at the right time. 

Maintains Investment Discipline

An auto-renewal facility helps avoid short-term distractions and impulsive spending decisions. It supports a well-planned and focused wealth-building strategy, especially for goals like retirement or children’s education, where disciplined saving is crucial. 

Also Read: Different Types of Fixed Deposits

Key Considerations and Strategies to Boost Fixed Deposit Returns

To maximise your FD returns, keep these important considerations and strategies in mind:

Interest Rates

Always choose the bank that offers the highest FD rate, as this influences your total returns. IndusInd Bank Fixed Deposits, for example, offer one of the best rates in the industry, which can significantly increase your final payout over the tenure.

Here are the additional benefits you get:

Book an FD online today! Access all the benefits of fixed deposit schemes with just a click!

Tax-Saving Opportunities

Interest earned on FDs is taxable as per your income tax slab under “Income from Other Sources.” Moreover, if your total interest income exceeds ₹40,000 (₹50,000 for senior citizens) in a financial year, banks deduct Tax Deducted at Source (TDS).

To minimise your tax burden, consider investing in tax-saver FDs, which offer tax deductions under Section 80C of the Income Tax Act, 1961, up to ₹1.5 lakh. Leveraging senior citizen FDs (for above 60 years) can also help earn an additional 0.5% to 0.75% in interest rates.

Tenure

The tenure of your FD plays a crucial role in determining your total returns. It is commonly observed that short-term FDs offer lower interest rates compared to long-term deposits. Hence, if you don’t need liquidity soon, it could be wise to opt for a longer tenure to benefit from higher rates. You can use an FD calculator to compare returns based on different tenures and interest rates and make more informed decisions.

Ladder your FD

Laddering your fixed deposits is a smart strategy to balance both returns and liquidity. It refers to splitting your investment into multiple FDs with varying tenures, i.e., short-term, mid-term, and long-term. This way, you get to enjoy higher interest rates from mid and long-term FDs while maintaining easy access to funds through short-term FDs. As each FD matures, you can either use the funds or reinvest them if better interest rates are available.

Key Takeaways

The benefits of automatic FD renewal are many, such as convenience, uninterrupted interest accrual, and reduced risk of idle funds. However, it is equally important to evaluate key factors like prevailing interest rates, suitable tenure based on your financial goals, and the tax implications of your investment. A well-informed FD renewal strategy can ensure better growth for your investment.

To get the best possible returns and benefits, choose the IndusInd Bank Fixed Deposit. Benefit from competitive rates, flexible tenures, an auto-renewal feature, multiple payout options, tax-saving opportunities, seamless digital access, and hassle-free instant online booking.

Book today!

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.