What is prolongation

What is prolongation

Most often, bank deposits have a specific term, for example, for one or three years. Contracts for perpetual deposits are concluded much less frequently. This is equally unprofitable and risky for both the bank and the depositor. The former, due to the unstable economic situation in the country, may incur losses servicing a perpetual deposit under the initial contract terms. The latter will under-receive their profit, since rates on such deposits are much lower, and with high probability will lose part of their own funds if the bank loses its license.

It is mutually beneficial for both parties to conclude a contract for a short-term deposit (no more than one year) with the possibility of prolongation. Prolongation is the extension of the contract after its expiration. Its re-conclusion gives the bank the opportunity to set the current interest rate without changing the general terms of the deposit.

Types of prolongation

There are two types of deposit prolongation: automatic and manual. Accordingly, they differ in that in the first case, the agreement is extended without the client's participation, while in the second, the depositor needs to contact the bank with an application. Let's look at both options in a bit more detail.

Automatic renewal

Automatic prolongation means that the agreement is extended without the need for an application. That is, the depositor does not need to visit a bank branch and write an application to reopen the deposit. The agreement will be extended if neither party has expressed a desire to terminate the contractual relationship.

Usually, prolongation is a mandatory part of the agreement that the client agrees to when opening a deposit. If automatic renewal is not provided for, the bank and the depositor conclude an additional agreement.

Features of automatic prolongation:

1. If desired, the depositor can refuse to extend the agreement and withdraw their money. That is, prolongation is not a mandatory condition for receiving interest on the deposit.
2. The prolongation period is generally unlimited. That is, the agreement can be extended indefinitely until one of the parties decides to terminate the contractual relationship.
3. Upon renewal of the agreement, its terms remain the same: the deposit term and its amount (unless capitalization is provided for).
4. Upon renewal of the deposit, its interest rate will be changed based on current key rate data. That is, the deposit yield can either decrease or increase.

Manual prolongation

If automatic renewal is not provided for by the terms of the agreement, then to continue placing money in the deposit account, the depositor will have to contact a bank branch with a corresponding application. This can be done the day after the expiration of the previous agreement.

Manual prolongation proceeds as follows:

1. Upon expiration of the first agreement, the depositor's own funds along with accrued interest are transferred to their regular account.
2. The client contacts the bank no earlier than the day after the agreement expires, bringing a passport and an application for prolongation. If re-concluding the agreement on the same terms is possible, the deposit is renewed.

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Advantages and disadvantages of the service

Prolongation is a convenient service. Especially if you prefer to keep your money in a deposit without withdrawing it. But prolongation, like other banking services, has its pros and cons. Let's look at them in a bit more detail.

Pros:

• first of all, automatic deposit renewal is convenient for the depositor because they do not need to visit the bank and close/open deposits to continue receiving passive income from the funds in the account;
• yield can be higher if you chose prolongation with capitalization;
• deposit terms may change in a direction more favorable to you;
• if you chose manual prolongation, the procedure for renewing the deposit will be simpler and faster than if you decided to close this deposit and open a new one.

Now let's move on to the disadvantages:

• due to changes in the key rate, it may happen that at the time of deposit renewal, the interest rate on it will be lower than the previous one;
• if the program under which your deposit was opened no longer exists, the bank will automatically transfer the deposit to a savings account and its yield will drop to 1% per annum.

How to prolong a deposit

If you have automatic deposit prolongation active, no additional actions are required from you. If you are going to renew the deposit manually, you will need to visit the bank office. You must bring with you:

• passport;
• deposit agreement.

A bank employee will give you an application to fill out for contract renewal. In it, you will need to indicate your full name, passport data, deposit number and name, and the date and validity period of the previous deposit.

When a bank can refuse prolongation

This does not happen often, but sometimes banks may refuse to renew the agreement. This occurs in the following cases:

• if the deposit program does not provide for renewal at all — in this case, you will need to come to the bank to close the deposit and, if desired, open a new one, but on different terms;
• if the program provides for a limited number of prolongations — in this case, the procedure is the same;
• if the client independently refused to renew the deposit — then they will need to contact the bank with an application for prolongation;
• if the program under which the deposit was opened has ceased to exist — then you will need to come to the bank and choose new terms for the deposit.

Answering questions

Will I receive interest if I use the prolongation service?

It all depends on the individual terms of the agreement. Depending on the bank and the program you choose, interest accrual can occur: monthly, quarterly, semi-annually, annually, or as a lump sum at the end of the deposit term. If interest has already been accrued to you throughout the entire deposit term, you will not, of course, be paid it again. If the deposit terms provide for payment only upon expiration of the agreement, you have two options:

• withdraw interest at the end of the deposit term, in which case the amount subject to prolongation will be the same amount you initially deposited;
• capitalize the interest, in which case the deposit will be larger due to the principal amount and the income from it for the previous period.

Can I withdraw part of the amount and prolong the rest?

Again, it all depends on the individual terms of the agreement. If your deposit program does not provide for the possibility of withdrawal, you can either prolong the entire amount or close the deposit. If you have a deposit with an inviolable balance, you can withdraw an amount not exceeding this very inviolable balance and renew the deposit.

 

Important.

Keep in mind that if you have automatic prolongation enabled, you can withdraw money from the deposit only on the expiration date of the agreement, since a day later the deposit will be renewed on the same terms.

Can prolongation be canceled if the agreement has already been renewed?

Yes, to do this, you simply need to close your deposit. This can be done at a bank branch. Upon cancellation, you will receive the principal deposit amount and the interest accrued for the previous period, provided you capitalized it.

Any interest accrued after renewal will be canceled upon contract termination.