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Its typical to allow a customer to renew an existing deposit account on maturity. If deposit account allows renewal (sometimes known as rolling it over) then we simply want to create/open another deposit account with the same 'terms', 'Matured Amount', 'Interest Rate' for Auto renew scenario. The following may be diiferent:be different for manual renew cases:
Use-Case: Manual Renewal of Deposit Account
- Deposit amount: The amount deposited might be the originial deposit again or the entire amount received from previous deposit account.
- Term: Customer may opt for different term from the original deposit term.
- Record it as a renewal: We should record that this deposit account is a renewal from a pre-existing deposit account (probably best to track the deposit account id it is a renewal of.)
- Interest Rate: MFI / Bank may give different interest rate based on the market offerings during the renew period.
Use-case: Automatic rollover or renewal of deposit account
- Deposit amount: The amount deposited might be the originial deposit again or the entire amount received from previous deposit account.
- Term: It will remain same as the original deposit term.
- Record it as a renewal: We should record that this deposit account is a renewal from a pre-existing deposit account (probably best to track the deposit account id it is a renewal of.)
- Interest Rate: MFI / Bank may give different interest rate based on the market offerings during the renew period.
Use-case: Full withdrawal and pre-closure of deposit account
Some deposit accounts allow for the customer to withdraw thier money in full from the account earlier than the maturity date but the result of this is heavy penalization. This is known as pre-closure. On pre-closure the interest accured to date is calculate from the closure date (length of time money was in deposit account), pre-closure interest rate and the original deposit amount.
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Use-case: Window for back out without penalty?
Use-case: Automatic rollover or renewal of deposit account
Interest Pay-out Simple Interest: Financial institutions also offers to pay the monthly realised interest component to its members as cash / cheque on monthly or quarterly based on the interest payout frequency selected for the FD Product.
Use Case: Interest pay-out frequency
An example for simple interest calculation interest payout, member has opted a FD product with a tenure of 12 months with annual interest rate of 12%, FD amount as 100000/-
Interest Realized per Month: 1000/-. Similarly, if it is a quarterly interest payout the realised interest component for 3 months i.e., 3000/-, is paid as cash / cheque to the FD holder.
This type of FD's are generally offered as to give some income to the FD holders.
Appendix:
Algorithm to calculate Effective Annual Rate (EAR) = (1 + (i/n))^n -1 where,
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