NEW DELHI: The Reserve Bank of India (RBI) has tweaked the norms for interest on the amount left unclaimed with the bank after a fixed deposit (FD), also called a term deposit, matures. As per the new rule, if a term deposit matures and proceeds are unpaid, the unclaimed amount will earn lesser of the interest between the prevailing interest rate on the FD and the saving account rate. Until now, unclaimed deposits attracted the rate of interest applicable to savings deposits.
‘It has been decided that if a term deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract a rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower,” says RBI in a circular.
The central banks made this amendment to section 9 (b) of the Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2016, that governs the way interest is paid by banks on these FDs. Typically saving bank account rates are much lower than FD rates. Given that we are currently in one of the lowest interest rate cycles seen in the last 20 years, depositors may end up earning further lower interests. A fixed deposit is a deposit that is kept in banks for a fixed period of time at a fixed interest. It also includes deposits such as recurring, annuity, cumulative, reinvested deposits, and cash certificates.
FDs can be done in the post office as well. FD investments have the advantage of availing loan, but the facility is not available on tax-saving FDs. What is an overdue FD deposit? It is one where the investor upon maturity of the deposit does not claim the amount nor does he/she renew the FD; it remains idle with the bank.
Deposits are classified as unclaimed by RBI if the customer doesn’t make any transaction in the account for 10 years or more. The new rules are applicable for deposits on all commercial banks, small finance banks, local area banks and cooperative banks. The development comes at a time when unclaimed deposits with banks have been growing every year.