Give standing instructions for renewal of your FD

Inform your heirs about deposits and whereabouts of related documents so that they can make a claim

The Reserve Bank of India (RBI) has tweaked the rules regarding the interest that depositors will earn on any amount left unclaimed with a bank after a term deposit (TD) or a fixed deposit (FD) matures. Depositors will now need to be more vigilant in light of this rule change.

The new rule

The RBI notification dated July 2, titled “Review of instructions on interest on overdue domestic deposits”, states that in case a term deposit matures and the proceeds are unpaid, the unclaimed amount shall earn the rate of interest applicable to a savings account, or the contracted rate of interest on the matured TD, whichever is lower. The old rule said that the amount left unclaimed with the bank would attract the rate of interest applicable to savings deposits.

According to the RBI notification, the new rule applies to all scheduled commercial banks (including regional rural banks), small finance banks, local area banks, and all cooperative banks (urban, district and state).

The trigger

The total value of unclaimed deposits had surged from ~14,307 crore in FY18 to ~18,380 crore by the end of FY19. Says Avinash Khard, associate partner, DSK Legal: “The amendment has come in light of the growing amount of unclaimed deposits with banks.”

Overdue deposits are quite common. Says Adhil Shetty, chief executive officer (CEO), Bankbazaar: “You need to inform the bank about what you would like to do with the deposit on maturity. For instance, in the case of an FD, you need to submit the counter-signed FD receipt along with your instructions. If you fail to do so, the FD becomes an overdue deposit and earns interest accordingly.”

Lower returns from overdue deposits

Now banks have two benchmarks to choose from while deciding on the interest to pay on unpaid deposits. Says Shetty: “They will have to decide between the savings bank interest rate and the rate at which the term deposit was opened. In the case of some banks, their short-term deposits, typically those of less than 90 days, have an interest rate lower than the savings bank rate. With this directive, such term deposits will continue to earn only the lower rate and not the savings bank rate.”

Keep heirs in the loop

If a customer doesn’t make any transaction in an account for 10 years or more, it becomes classified as an unclaimed deposit. Such deposits can include funds in current and savings accounts as well as term deposits. Says Shetty: “Unclaimed deposits are transferred to the Depositor Education and Awareness (DEA) Fund, where they are invested in instruments such as government securities.”

The investment is overseen by a committee set up by the RBI. The proceeds from the investment are used to pay interest on the deposits and to fund investor awareness.

The primary reason deposits remain unclaimed is that the account holder’s dependants are not aware of the investment. Hence, it is essential that you inform your dependants, especially your nominee or heir, about all your investments and insurance policies, and where the required documentation is kept, so he/she can access it as and when required.

Always keep track of the maturity dates of your fixed deposits. In fact, you should give the necessary standing instruction on renewal while making the deposit itself.