SBI, HDFC Bank, ICICI, or any other bank’s Fixed Deposit account holder? Overdue FDs to earn low interest now

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Updated: July 11, 2021 11:26 AM

Fixed Deposit interest rate: The Reserve Bank of India recently announced a change in rule of the interest rate applicable to overdue domestic fixed deposits in banks and co-operative banks.

fixed depositRepresentative image

The Reserve Bank of India recently announced a change in the rule for interest rates applicable to overdue domestic fixed deposits in banks and co-operative banks. As per the RBI decision, Fixed Deposit (FD) account holders in all banks and co-operative banks will get lower of the savings deposit rate or the contracted FD interest rate on the overdue deposits.

“On a review of these instructions, it has been decided that if a Term Deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower,” the RBI said.

What has changed

The previous rule for overdue deposits in banks said, “If a Term Deposit matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract rate of interest as applicable to savings deposits.” However, this has now been changed to:

“If a Term Deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower.”

Similarly, the previous rule on overdue deposits for co-operative banks said, “If a term deposit matures and proceeds are unpaid, the amount left unclaimed with the co-operative bank shall attract rate of interest as applicable to savings deposits.” This has been changed to:

“If a Term Deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the co-operative bank shall attract rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower.”

Implications of new rule explained

The new rule will apply to FD customers of all banks including State Bank of India (SBI), HDFC Bank, ICICI Bank etc and the co-operative banks.

With banks already offering low-interest rates on both FDs and savings account deposits, there would not be much impact of the new RBI decision on overdue fixed deposits. As the banks were already applying savings deposit interest rates on the overdue amount. And savings deposit interest rates offered by lenders are generally lower than the FD rates.

However, in view of the falling FD rates across all lenders, the RBI decision would make sure that only the lowest interest rate applies to overdue FDs.

What customers should do?

In view of the new RBI decision, bank customers should either withdraw the FD amount on maturity or re-vest it in a new FD account.

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