SBI, HDFC Bank, ICICI or holder of a fixed deposit account of any other bank? New FD Rule May Reduce Your Returns

The Reserve Bank of India recently announced a change in the interest rate rule applicable to overdue domestic fixed deposits in banks and cooperative banks. As per the RBI decision, holders of fixed deposit (FD) accounts in all banks and cooperative banks will get a reduction in the savings deposit rate or FD interest rate contracted on overdue deposits.

“After reviewing these instructions, it was decided that if a term deposit (TD) matures and the proceeds are not paid, the unclaimed amount at the bank will attract the interest rate applicable to the account. ‘savings or the contractual interest rate on the matured TD, whichever is lower,’ the RBI said.

what changed

The previous rule for overdue deposits in banks said, “If a term deposit matures and the proceeds are not paid, the unclaimed amount at the bank will result in the interest rate applicable to the deposits of saving. However, this has now been changed to:

“If a term deposit (TD) matures and the proceeds go unpaid, the unclaimed amount at the bank will attract the interest rate applicable to the savings account or the contractual interest rate to the bank. TD matured, whichever is lower ”.

Likewise, the previous rule on overdue deposits for cooperative banks stated that “if a term deposit matures and the proceeds are not paid, the unclaimed amount at the cooperative bank will result in the interest rate. applicable to savings deposits ”. This has been changed to:

“If a term deposit (TD) matures and the proceeds are not paid, the unclaimed amount at the cooperative bank will attract the interest rate applicable to the savings account or the contractual interest rate on the TD expired, whichever is lower ”.

Implications of the 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 cooperative banks.

With banks already offering low interest rates on FDs and savings account deposits, the RBI’s new move would not have much of an impact on overdue fixed deposits. As the banks were already charging interest rates on savings deposits on the overdue amount. And the interest rates on savings deposits offered by lenders are generally lower than FD rates.

However, given the declining FD rates among all lenders, the RBI’s decision would ensure that only the lowest interest rate applies to delinquent FDs.

What should clients do?

In view of the new RBI decision, bank customers should either withdraw the FD amount at maturity or reinvest it in a new FD account.