What will happen if FD matures but money is not withdrawn? Know the new rule of RBI and the complete mathematics of interest

Many customers investing in Fixed Deposit often forget the maturity date of their FD or do not go to the bank on time or claim the money through net banking. In such a situation, the biggest question that arises is what happens to the money lying in the bank and does it continue to earn high fixed deposit interest like before?

The Reserve Bank of India (RBI) has set strict and clear guidelines regarding unclaimed or overdue fixed deposits. If your FD has matured and you have not given any prior instructions for withdrawal or renewal, then earning normal FD interest on it stops immediately.

According to the rules of the Reserve Bank, if a term deposit matures and the amount remains unclaimed/unpaid, then the interest received on it will be whichever of the following two rates. Lower Will be, is decided on the basis of:

1. current of the concerned bank Savings Bank Interest Rate.

2. available on original FD Contracted FD Interest Rate.

Since savings account interest rates (which usually range between 2.70% to 3.50%) are always much lower than long-term FD rates (6.50% to 7.50%), interest starts accruing only at the savings account rate on your entire deposit from the very next day of maturity. Due to this the investor has to suffer huge loss of interest.

While opening an FD, most banks ask for ‘Maturity Instructions’ from the customers. If at the time of opening the account you ‘Auto-Renewal’ If you had opted for: then you do not need to go to the bank:

• Renewal for same period: The bank converts your maturity amount (principal + interest earned) into a new FD for the same tenure.

• Applicable interest rate: Keep in mind that at the time of renewal, the interest rate that will be applicable in the bank on that particular day will be applicable and not the old rate at which you had invested years ago.

• Penalty for premature break: If you suddenly withdraw money a few days after auto-renewal, the bank may consider it as ‘pre-mature withdrawal’ and deduct a penalty of 0.5% to 1%.

If a customer does not claim his matured FD money for 10 years and there is no transaction in the account, then the bank’s rules become more stringent:

• Unclaimed Deposit Classification: The amount lying dormant for 10 years is officially declared as ‘Unclaimed Deposit’.

• Transfer to RBI’s DEA Fund: Banks transfer this entire amount to the ‘Depositor Education and Awareness’ (DEA) fund of the Reserve Bank of India.

• Way to get money back: Although this money does not sink. The original depositor or his legal heir/nominee can claim his amount from the bank by presenting the required identity card and original FD receipt. RBI’s centralized portal ‘UDGAM Portal’ provides the facility to search such unclaimed money.

To avoid interest loss on FD money, investors should take some basic precautions:

• Set up an auto-credit mandate: While making an FD, always give instructions that the entire amount should be automatically transferred to your savings account on the day of maturity.

• Set a reminder in calendar or phone: Set an alert a week before the maturity date of the FD so that the decision to reinvest the money can be taken in time.

• Keep nominee and mobile number updated: Make sure that the correct mobile number and name of the nominee is registered in your bank account, so that you receive maturity SMS alerts on time.