What is Auto Renewal in Fixed Deposit?

Posted on Friday, July 19th, 2024 | By IndusInd Bank

Fixed deposits are a preferred investment instrument for Indian bank account holders. They can act as emergency funds for unplanned moments of unemployment, vacations, or high medical expenses. Typically, the money you invest is returned to you with a predetermined interest percentage after some time.  

Investors may compromise on the interest rate bonus in an event that demands spontaneous funds. It calls for cashing out your FD investments beforehand!  

On the other hand, many investors don’t need these investment amounts immediately. Thus, they keep their money locked in and protected as an FD. In this case, the auto-renewal of fixed deposits is the best option since you can keep earning interest on these investments. 

What is Auto-Renewal in FD? 

FD auto-renewal is when your money invested in fixed deposits starts another cycle automatically after maturity. Investors like you can withdraw these funds earlier in case of an emergency.  

But if there’s no urgent need to break your FD, you can opt for an auto-renewal fixed deposit that restarts your new lock-in period.  

Remember that, by default, the new FD cycle will stay locked in for the same period but at a new interest rate. 

Two Methods for Renewing Your FDs 

You can do an FD auto-renewal via setting standing instructions, physically visiting a branch, or using our bank’s smartphone application. 

Fixed Deposit Automatic Renewal 

Banks or financial institutions can use this method only when they have standing instructions for renewing your FD. It implies that when the FD maturity period is complete, your bank will automatically initiate a new FD investment period with the specifics you had chosen when booking the FD for the first time.  

Investors can decide on the FD auto-renewal feature at the initial stages of setting their FD or at any point during the FD’s lock-in period. Regardless of when you do it, the bank will auto-renew your FD at the current interest rate the day it matures. 

Note that the present interest rate on offer may be lower than your earlier interest percentage. It means a lower current interest rate could damage your potential earnings.  

Manually Renewing FDs 

If you want to renew your FD manually, you must visit a customer representative at your bank’s nearest branch or do the process online. Do this process near your FD’s maturity period to avoid missing interest when your fixed deposit becomes inactive.  

The upside in this FD renewal process is that the bank offers the same interest rate if you wish to renew your investment for the same period as earlier.  

Also Read: Step-by-Step Procedure for Renewing and Withdrawing a Fixed Deposit 

Is There a Problem if I Don’t Renew my FD? 

No, there’s no problem. Your bank account will simply be credited with the matured FD amount, and the FD will no longer be active.  

Firstly, no bank will automatically renew your FD unless you’ve given them prior permission to auto-renew. Secondly, once your FD matures, the bank will inform you of the transaction into your account. Thirdly, there’s no chance you won’t get access to your funds whether or not you renew your FD. 

Our FD interest calculator lets investors know how their FDs perform over time.

Benefits of Auto Renewal in FD 

Auto renewal is one of those features that quietly makes life easier. When your fixed deposit matures, it gets renewed automatically—no need to remember dates or take action. This means your money keeps earning interest without any gap. 

Here’s why people find it useful: 

• You don’t miss out on interest: If you forget to renew your FD on time, even a few days’ delay can mean lost earnings. Auto renewal takes care of that. 

• It’s hassle-free: No need to visit the bank or log in to your account. It just happens. 

• Great for cumulative FDs: If you’ve chosen a cumulative FD, auto renewal helps your investment grow further through compounding. 

• One less thing to track: Especially helpful if you have multiple FDs or a busy schedule. 

Why Do Banks Provide Auto Renewal Facility? 

From the bank’s point of view, auto renewal is a win-win. It keeps customers invested and simplifies operations. Here’s why banks offer it: 

• It helps retain customers: If your FD renews automatically, you’re more likely to stay with the same bank. 

• Less paperwork: It reduces the need for manual processing and follow-ups. 

• Better customer experience: Especially for senior citizens or NRIs who may not be able to visit the branch easily. 

Factors to Consider Before Opting for Auto Renewal of FD 

Auto renewal sounds great, but it’s not always the best choice for everyone. Before you opt in, think about the following: 

• Interest rates may change: Your renewed FD will earn interest at the rate available on the day of renewal. If rates have dropped, your returns might be lower. 

• Same tenure gets repeated: If your financial goals have changed, you might want a shorter or longer term. 

• Tax implications: Renewed FDs can affect your taxable income, especially if the interest pushes you into a higher tax bracket. 

• Need for liquidity: If you think you’ll need the money soon, manual renewal gives you more control.

Two Ways to Withdraw Fixed Deposit 

Unless you choose fixed deposit auto-renewal investment channels, here are two ways to withdraw your FDs. 

1. After Maturity: This is a straightforward method, as investors can withdraw their principal amount with added interest once the FD matures. You can also choose the FD auto-withdrawal feature, which allows the bank to directly credit your savings account. 

2. Before Maturity: Although not recommended, investors can withdraw their FD earlier to meet unexpected payments. Be wary of the penalty for such early withdrawals. 

FAQ Related to Auto Renewal of FD 

Q1. Can I turn off auto renewal after enabling it? 

Yes, you can cancel it anytime before the FD matures. Just contact your bank or update your settings online. 

Q2. Will I get the same interest rate on renewal? 

No, the renewed FD will earn interest based on the rate available on the day of renewal, which could be higher or lower than before. 

Q3. Is auto renewal available for all types of FDs? 

Most banks offer it for both cumulative and non-cumulative FDs, but it’s best to check the terms with your bank. 

Q4. What if I forget to disable auto renewal? 

Your FD will be renewed for the same tenure. If you want to make changes later, you may need to break the FD early, which could lead to penalties. 

Q5. What happens if an FD is not renewed? 

If you don’t renew your FD, the bank may transfer the maturity amount to your linked savings account. In some cases, the amount might be held in a non-interest-bearing account until you give instructions. 

Q6. Is there a problem if I don’t renew my FD? 

While there’s no penalty for not renewing, your money may stop earning interest after maturity. That means you could miss out on potential returns if the funds just sit idle.

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.