Overdue Fixed Deposit Impact on Interest Rates

Posted on Friday, October 25th, 2024 | By IndusInd Bank

Fixed deposits (FDs) are a popular investment choice in India, known for their stability and guaranteed returns. However, what happens when your FD matures, and you fail to renew or withdraw the funds? This leads to an overdue fixed deposit that affects the interest earned on your investment. Let’s learn more about it.

What is an Overdue Fixed Deposit?

Let’s understand overdue FDs first. 

• An overdue fixed deposit is an FD that has reached its maturity date, but the investor has not taken any action to either renew or withdraw the matured amount. 

• When a fixed deposit matures, the principal amount, along with the accrued interest, is supposed to be paid out to the investor. 

• If the investor does not claim or reinvest this amount, the FD becomes overdue.

Does an Overdue Fixed Deposit Earn Interest?

How and whether interest is paid on overdue fixed deposits varies from bank to bank. 

In most cases, the overdue fixed deposit interest rates are lower than the original rate. Here are some points explaining it:

· How Interest Works During the Overdue Period

Once an FD becomes overdue, it stops earning the pre-determined deposit interest rate. Instead, banks may offer a savings account interest rate or a reduced rate on the overdue amount. For example, if the original FD rate was 6.5% p.a., the overdue period might only earn around 3-4% p.a.

· Bank Policies May Differ

Each bank has its own policy regarding overdue FDs. Some banks might allow the interest to accumulate at a reduced rate for a specific period. After this period, no interest is paid. Others might offer a grace period during which the investor can renew the FD at the prevailing fixed deposit interest rates.

· Understanding the Impact on Returns

The lower interest rate on overdue FDs can impact your overall returns. If you renew the FD, you could earn better interest. Hence, it is crucial to take timely action. 

How to Manage an Overdue Fixed Deposit?

To prevent or manage an overdue fixed deposit, consider the following steps:

1. Auto-Renewal Option

Opt for the auto-renewal feature that automatically renews your FD at the prevailing fixed deposit interest ratesupon maturity. This ensures continuous earnings.

2. Timely Withdrawal

If you need the funds upon maturity, ensure you initiate the withdrawal process on time. Reach out to your bank or visit their website a few days before the maturity date to understand the withdrawal procedure.

3. Reinvest the Maturity Amount

Consider reinvesting the maturity amount into a new fixed deposit to continue earning higher interest rates. You can use an FD calculator to compare the returns on different tenures and interest rates to make an informed decision.

4. Consult Your Bank

If your FD has already become overdue, reach out to your bank as soon as possible. They will guide you on the current interest rate applicable to the overdue amount. This will help you decide whether to renew or withdraw the funds.

Also Read: Navigating the Benefits of Auto-Renewal Fixed Deposits

Conclusion

While an overdue fixed deposit does not lead to a complete loss of interest, it can impact the overall returns. Managing your fixed deposits with due attention can help you maximise your returns and ensure your funds continue to grow. 

Being proactive with your FD is easier when you can book and manage it online. With IndusInd Bank, you can book an FD in a 100% digital, hassle-free manner! Non-IndusInd Bank customers can open an FD account via our website while existing customers can use our IndusMobile banking app or our IndusNet banking portal. We offer high interest rates, auto-renewal options, and the freedom to receive interest payments at the frequency you want! 

Start booking a Fixed Deposit with IndusInd Bank today! 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your 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 making any financial decisions based on the contents and information.