Fixed Deposit Auto Renewal: Benefits and Best Practices

In Indian households, when it comes to investments, Fixed Deposits have always been a popular choice. In fact, as per SEBI data, about 95% of Indian households have parked their savings in FDs. In spite of this popularity, most FD investors still have little clarity of Fixed Deposit renewals and the benefits of such.

Basically, when your FD matures, you have two options - either withdraw or renew your FD. In this blog, we have explained how FD renewal works and its benefits.

Understanding Automatic Fixed Deposit Renewal

Automatic fixed deposit renewal offers convenience to investors. Banks allow investors to automatically renew their fixed deposits upon maturity without any manual intervention. The tenure remains the same as the original deposit tenure. With auto-renewal, you don't need to visit the bank to renew your FD. The process happens seamlessly, ensuring that your funds remain invested and continue to earn interest.

Benefits of Automatic Fixed Deposit Renewal

Fixed deposit renewal offers several benefits for investors, making it a preferred choice for many. These benefits include:

1. Effortless Renewal

Opting for auto-renewal for fixed deposits eliminates the need to visit the bank or navigate online procedures for FD renewal. This approach saves time and effort, making it a suitable choice for those seeking a seamless and hassle-free experience.

2. Uninterrupted Interest Accumulation

Auto-renewal ensures that your funds remain invested without interruption. It allows continuous interest accumulation. This facilitates the compounding effect, ultimately leading to higher returns over the long term.

3. Interest Rate Advantage

In an environment where interest rates are declining, auto-renewal shields you from reinvesting at lower rates. By renewing your FD at the original deposit's interest rate, you can maintain higher earnings.

4. Avoidance of Non-Earning Periods 

Investors may sometimes neglect to renew their FDs upon maturity, causing their funds to sit in a non-interest-bearing account. Auto-renewal prevents such situations, ensuring that your funds remain consistently invested.

Why Banks Provide Automatic Fixed Deposit Renewal Facility?

The automatic fixed deposit renewal service provides advantages to both banks and customers. For customers, it simplifies the renewal process, improving overall satisfaction and engagement. 

For banks, it optimises administrative procedures, making operations more efficient and reducing costs. Additionally, this approach enhances the fixed deposit renewal experience, benefiting all parties involved.

For customers, auto-renewal increases convenience and provides reassurance. It aligns with the bank's goal of delivering customer-focused services while promoting savings and disciplined investment.

How to Renew Fixed Deposit

Most banks allow investors to opt for auto renewal at the time of opening FD account.

• Step 1: Go to the bank's online banking portal
• Step 2:Select Fixed Deposit
• Step 3: Choose your preferred deposit tenure and amount
• Step 4: Opt for 'Auto Renewal'

Make payment towards your FD to open your account. Upon maturity, your FD will get automatically renewed.

Alternatively, you can visit your nearest bank branch, specify your FD details and submit your term deposit renewal request. The bank will process your FD renewal request.

Advance Tips on Auto Renewal: Things to Consider

1. Interest Rate Consideration

Consider prevailing FD rates and auto-renewal rates. If the prevailing rates are higher, you may lose out on higher returns. Factor in this scenario before opting for auto-renewal.

2. Liquidity 

Opting for auto-renewal means your FD will get reinvested for the same tenure upon maturity. This may block quick access to funds at the time of emergency. Though callable FDs (FDs that don't come with lock-in period) offer premature withdrawals, however, banks pay charge a certain penalty fee, usually up to 1% for early withdrawal of funds.

3. Investment Goals

Evaluate your liquidity needs, investment horizon and financial goals before opting for auto-renewal. Manual renewal maybe suitable if you have specific plans for funds upon FD maturity.