Overdue Fixed Deposit

Recently, fixed deposits (FDs) have become a popular investment option due to rising interest rates. While making an FD, you can choose the tenure of your FD based on your financial goals. Later, when the deposit reaches its maturity date, you have two options: withdraw the funds along with the interest earned or renew the deposit for another term.

Now, if you fail to choose either of these two options, it becomes an "overdue fixed deposit". This types of fixed deposit remains dormant with the bank and does not earn interest at the contracted rate. This negatively impacts your overall returns and eventually leads to interest loss. In this guide, let’s understand what interest you earn on overdue fixed deposits and how you can avoid them.

• An overdue fixed deposit occurs when you fail to withdraw or renew your FD after it matures.
• On an overdue FD, you do not earn interest at the originally contracted rate.
• According to RBI regulations, banks must pay interest on overdue FDs based on the lower rate between the savings account interest and the matured FD's original rate.
• To prevent an FD from becoming overdue, you can set maturity instructions when opening the deposit.
• These instructions guide banks as to what they should do upon maturity.

What are overdue fixed deposits?

Fixed deposits are once again gaining traction as reliable wealth-building tools, especially in a rising interest rate environment. Investors can choose the deposit tenure based on their financial goals, and upon maturity, they must either withdraw the funds or renew the FD for a new term.

If neither action is taken after maturity, the fixed deposit becomes overdue. In such cases, the FD remains inactive or dormant with the bank until further instructions are provided.

Fixed deposits have once again become popular as dependable investment options, especially with rising interest rates. They allow investors to choose a tenure that aligns with their financial goals.

When the FD matures, the investor must either withdraw the funds or renew the deposit for a new term. If no action is taken, the FD becomes overdue.

An overdue FD remains inactive with the bank. It must be noted that once an FD matures, the bank is no longer obligated to pay the originally agreed interest rate. Instead, a lower interest rate is applied, as per the Reserve Bank of India (RBI) guidelines.

In 2021, the RBI issued guidelines stating that for overdue fixed deposits, the bank must pay the lower of these two interest rates:

• The savings account interest rate or
• The interest rate of the matured FD

So, if your FD matures and you don't renew or withdraw the amount, the bank will calculate the interest using the above rule. Let’s understand better through an example:

Say you deposit Rs. 50,000 in a Fixed Deposit at 8% interest for one year. By the end of the term, your FD matures and grows to Rs. 54,000.

Now, if you don’t withdraw or renew the deposit and leave it overdue for another year, the bank will no longer offer the original 8% interest. Instead, a lower rate—usually the prevailing savings account interest rate, say 4%—will be applied to the matured amount of Rs. 54,000.

In this scenario, you would earn just Rs. 2,160 as interest during the overdue period, significantly less than what you earned during the original FD term.

To avoid losing out on higher returns, consider investing in a Bajaj Finance Fixed Deposit. Backed by AAA ratings from CRISIL and ICRA, it offers attractive interest rates of up to 7.75% p.a., ensuring your money continues to grow efficiently.

To prevent an FD from becoming overdue, you must either withdraw or renew the deposit before it matures. An overdue FD occurs only if you fail to take action when the deposit reaches its maturity date.

If you created your FD offline, you need to visit the bank branch to handle the withdrawal or renewal. Whereas, if you have used your bank’s mobile application to create an FD, you can easily manage it online.

To avoid this situation, even many banks now allow customers to set “maturity instructions” when they open their deposits. By setting these instructions, you can specify what should happen once the FD matures. Commonly, these instructions are:

• Renew the FD for the same tenure at the applicable interest rate or
• Close the FD and credit the principal with interest to my savings account.

Conclusion

Although an overdue fixed deposit does not result in a complete loss of interest, it may reduce the overall returns earned on your investment. Monitoring your FD and taking timely action at maturity can help ensure that your savings continue to grow efficiently and generate optimal returns.

Managing fixed deposits has become more convenient with digital banking platforms. Many financial institutions allow customers to open and manage FDs online, offering features such as competitive interest rates, auto-renewal facilities, flexible interest payout options, and a seamless investment experience. These features can help investors stay on top of their deposits and make the most of their savings.