Renewal of Fixed Deposit (FD) refers to the process by which the FD is extended for another term or tenure upon reaching its maturity date. When an FD matures, the account holder has the option to reinvest the principal amount along with the interest earned for a new fixed period at the prevailing interest rate offered by the bank. Here are detailed notes on the renewal of FD:
1. Maturity Date: The maturity date is the end date of the FD, indicating when the FD term comes to an end. On the maturity date, the FD becomes due for renewal, and the account holder can decide whether to reinvest the funds or withdraw them.
2. Auto-Renewal Facility: Many banks offer an auto-renewal facility, where the FD is automatically renewed for another term of the same duration at the prevailing interest rate if the account holder does not provide any specific instructions for renewal.
3. Renewal Options: Upon maturity, the account holder has the following renewal options:
- Full Renewal: The entire principal amount, along with the interest earned, is reinvested for another fixed term at the prevailing interest rate.
- Partial Renewal: The account holder can choose to renew only a part of the principal amount and withdraw the remaining amount.
- Withdrawal: The account holder can choose not to renew the FD and withdraw the entire principal amount along with the interest earned.
4. Interest Rate for Renewed FD: The interest rate for the renewed FD may be different from the interest rate applicable to the original FD. It is usually based on the prevailing market conditions and the bank’s interest rate policies at the time of renewal.
5. Renewal Period Options: Banks offer various renewal period options, allowing the account holder to choose a new term for the renewed FD. The renewal periods typically range from a few days to several years.
6. Procedure for Renewal: To renew the FD, the account holder needs to provide instructions to the bank before the maturity date. If the bank offers an auto-renewal facility, and the account holder does not wish to renew the FD, they must inform the bank accordingly.
7. Tax Implications: Upon renewal, the interest earned on the renewed FD is treated as a separate income stream and is subject to taxation based on the individual’s tax bracket.
8. Grace Period for Renewal: In some cases, banks may offer a grace period during which the account holder can decide whether to renew the FD or make any changes to the renewal options. The grace period usually lasts a few days after the maturity date.
9. Benefits of Renewal:
- Continuity of Investment: Renewing the FD allows the account holder to maintain continuity in their investment plan and continue earning interest on their funds.
- Convenience: Auto-renewal offers convenience as the FD is automatically renewed without requiring the account holder’s intervention.
10. Monitoring Renewal Dates: For customers with multiple FDs, it is essential to keep track of renewal dates to make informed decisions about reinvestment or withdrawal.
Renewal of FD provides account holders with the flexibility to continue earning interest on their investments while maintaining control over their funds. Customers should review the prevailing interest rates and their financial goals before deciding to renew an FD.