Fixed deposits (FD) are one of the most well-regarded investment instruments, preferred by investors of all income categories and risk profiles. The liquid nature of the asset and assured rate of returns make fixed deposits an early addition to many investors' personal finance portfolios. Unfortunately, fixed deposits don't come with an in-built contingency plan.
This makes many depositors wonder what happens to a fixed deposit if they pass away. Does the money stay with the bank or financial institution providing the term deposit service? Or does the deposit get credited to a nominee or legal heir? Or can the money be prematurely withdrawn by anyone with the account details?
If you are also feeling hesitant about investing in a fixed deposit because of such concerns or, worse, regretting investing in an FD without checking these terms, then this piece is for you.
Let's begin by understanding how a fixed deposit typically works.
Normally, any depositor can open a fixed deposit with a bank or financial institution if they have an active savings/current account with them. At the time of opening the term deposit, the depositor has to define key parameters such as the amount of the deposit, tenure of the deposit, and maturity instructions. Upon maturity, an FD can be renewed at the prevailing interest rate either manually by the depositor or by setting auto-renewal instructions.
Alternately, once matured, the deposit amount and interest can be credited to the linked savings account of the depositor. There can be more than one depositor or joint account holder for an FD as well. If required, depositor(s) can prematurely withdraw their deposits by bearing some interest penalty.
However, if the depositor passes away before the FD is matured, then here is what the depositor, nominees, and legal heirs of the depositor should be aware of:
For Solo Depositor
In addition to all the other details, a depositor can also appoint a nominee at the time of opening a fixed deposit. Let's assume that a depositor provided the nominee details, and when he passed away, the nominee chose to let the fixed deposit continue its term and didn't initiate a premature withdrawal. In such a situation, once matured, the fixed deposit will be refunded to the nominee upon maturity. This is subject to submission of proof of death (of the depositor) and ID proof by the nominee.
In the absence of a nominee, the matured fixed deposit can be refunded to a legal heir of the depositor if they choose to claim it. This also requires submission of proof of death, ID proof, heir status, and any other documents that the financial institution may require to verify the connection between the depositor and the claimant.
For Joint Account
If there are more than one depositor of an account and one of the depositors passes away, then the survivor account holder(s) can choose to continue the term deposit and receive the maturity amount in the linked savings account as usual. No interest penalty or deductions are applied on the fixed deposit.
Things get a little complicated if premature withdrawals are to be made of an FD whose depositor is deceased.
For Solo Depositor
The appointed nominee or anyone who is a legal heir to the deceased depositor's estate can withdraw the fixed-term deposit. However, just like in the case of deposit maturity, the death premature procedure also requires the nominees or legal heirs to submit proof of death, ID proof, and supporting documents to close a deposit.
Furthermore, depending upon the timing of the premature withdrawal, the bank or financial institution can reduce the interest payable with the deposit. For instance, if the FD premature procedure for the nominee has been initiated almost as soon as the deposit was opened, no interest may be paid. If the deposit has completed its term partially, then the premature withdrawal may be made at a reduced interest payout of 2-3%.
For Joint Account
For jointly held fixed deposits, if the primary account holder passes away, the secondary account holder(s) can access the deposit by intimating the bank or financial institution of the situation. The FD premature procedure for the joint holder is also similar to that of a nominee or survivor, especially in terms of documentation required to verify the death of the depositor.
If both or all the depositors, if a jointly held fixed deposit passes away, then the appointed nominee(s) or legal heir(s) can initiate premature withdrawal of the FD.
Fortunately, the FD survivor premature procedure is no longer limited to in-branch services, and premature withdrawal of deposit amount or FD survivor maturity refund procedure can be completed online. The online FD survivor premature procedure also makes it easy for nominees or survivors to check the deposit account balance and the interest penalty, which a premature withdrawal will attract. This way, they can choose to maintain the deposit till maturity if there is no urgent need for funds.
Due to the outward complexity of the process, depositors and their nominees or survivors often find it difficult to complete all the requirements of the bank maintaining the deposit. As a result, they are unable to access the funds of the deceased when they are critically needed. Therefore, it's important to find a financial service provider who is empathetic to this situation and provides transparent mechanisms for managing fixed deposits after the death of the depositor.
Shriram City fixed-term deposits are designed keeping all such personal contingencies in mind. Rated MAA+/ with stable outlook by ICRA, Shriram City offers high interest fixed deposits with a lock-in period of 3 months. But in the event of a depositor's death, these fixed deposits can be withdrawn by the nominees or legal heirs without any hassle. Premature withdrawals up to 6 months are made without any interest, and beyond 6 months are made at a 2% reduced ROI.
However, the simplicity of their FD survivor maturity refund procedure and the provision of online FD survivor premature procedure makes their fixed deposits the safest way to invest your money.