Should you opt for auto-renewal of fixed deposits?

If you have a single or multiple Fixed Deposits (FDs) to your name, you perhaps have wondered what to do once the funds mature. Often, you have two options – withdraw all funds or auto-renew the deposit.Auto-renewal is a feature wherein your FD is automatically renewed on maturity. Usually, the terms and conditions of the FD auto-renewal remain the same as your last fixed deposit with your bank.

Should You Opt for FD Auto-Renewal?

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A simple ‘Yes’ or ‘No’ cannot answer this question. FD auto-renewal depends on the prevailing interest rates, the number of fixed deposits you hold and whether or not your lender offers this facility. However, there are certain scenarios where auto-renewal makes a whole lot of sense. These include:

Multiple Fixed Deposits

If you are a conscious saver, you will likely have multiple FDs made on separate occasions with one or more than one bank. Keeping track of all of them and reinvesting that money in new FDs can be an uphill task.

Auto-renewal in this scenario is an excellent option as your bank will reinvest your maturity proceeds in a new fixed deposit with the same interest rate. Doing this ensures you don’t lose interest by transferring your money into a savings bank account.

Change of City

Often individuals own fixed deposits in a bank branch of a city they no more reside in. If they had opened an FD account online, they could set instructions to renew it online. However, if the FD account was opened offline (by visiting the branch), customers will need to re-visit the bank before maturity.

Auto FD renewal ensures your bank rolls over your FD without you visiting the branch. Had it not been for this option, your offline FD funds would end up lying in your saving’s bank account losing interest. Auto FD renewal is also a great option if you don’t like using mobile or internet banking on your laptop or smartphone.

When Should You Not Opt for Auto-Renewal of Fixed Deposits?

While FD auto-renewal offers a great deal of convenience, it also restricts you a little in specific ways. Here are the scenarios when auto-renewal might not be the right option for you.

Volatile Market Conditions

If a rise in FD interest rates is projected, consider a fresh FD from the funds received on maturity. Remember, most banks guarantee an auto-renewal on your previous FD’s terms and conditions, which would be lower if there is a rise in revised FD ROIs. However, if experts predict a fall in interest rates, make sure to auto-renew your FD.

Switching Banks

It is no secret that you want the best interest rate for your FD. If you learn of a bank providing better rates than the one you have your fixed deposit in, don’t opt for auto-renewal. In case you find better interest rates after your FD has been auto-renewed, you can always break and shift your fixed deposit to another bank.

Parting Thoughts

Carefully ponder over all the scenarios listed above before choosing the auto-renewal option. Also, try to inform the bank before maturity, whether or not you wish to renew your FD with them.

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