Picture: 123RF/`Maksym Yemelyanov
Picture: 123RF/`Maksym Yemelyanov

If you invest for a fixed term, be sure you know what your bank or investment house will do at the end of the term if it doesn't receive a new mandate from you.

A Stellenbosch pensioner was horrified to find her R330,000 investment with Absa had been reinvested for another 12 months and she would be charged a penalty of about R11,500 to get access to her funds before the end of the new investment term.

She has no recollection of the contract she signed, which she claims was never given to her, nor does she recall being told about the "automatic renewal". In terms of this clause, if she failed to instruct the bank what to do with her matured investment, the bank would reinvest her money in the same investment for the same term as the original contract, but at the prevailing interest rate.

The fixed-term investment was made in October 2018 at a branch of the bank. It was for 12 months at an interest rate of 8.3%. She elected to have her interest paid to her monthly.

In November last year she noticed she had been paid less interest than in previous months. When she made inquiries in December, she discovered her money had been reinvested at a rate of 7.5% and that if she wanted to get access to it before October this year, she would have to pay a hefty penalty of 3.45% of her initial investment.

This week Absa sent the customer a record of advice bearing her signature. Under the heading "Automatic Renewal" it clearly states that if at the end of the investment term the bank hasn't heard from the investor, it will automatically renew the investment for the same term at the fixed interest rate applying at the time.

It goes on to say that within 30 days of the start of the renewed term one can:

• Change the length of the term and the frequency of the interest payments; or

• Cancel the investment without having to pay a fee.

 In the absence of a new mandate from a customer to reinvest, why doesn't the bank place the money in a money market account, which is more accessible and doesn't attract penalties on withdrawal?

5.75%

The maximum penalty that Absa charges fixed-term investors who break their contract with the bank

Thami Cele, Absa's head of savings and investments, says the bank cannot change the contract the customer originally opted for by moving money to another product without their consent. "To ensure that the customer continues to earn interest on their capital, we reinvest the funds in the same product but at rates applicable at the reinvestment date."

Capitec has taken a different approach. In the absence of a mandate to reinvest a matured investment, the bank unlocks access to the funds, which continue to earn interest, albeit it at a lower rate. Since there's no reinvestment, there's no penalty when you draw your money after maturity date.

The client says she didn't receive statements from Absa pertaining to the investment. Cele says statements are "not applicable" to fixed deposit products because of the nature of the product, which doesn't allow for adding to or drawing from the capital during the term of the product.

First National Bank sends statements out quarterly on fixed-deposit accounts, says Sibongile Kumalo, the product head of FNB Cash Investments. "However, [on] our old fixed-deposit product [we] only issue statements at maturity."

Some banks make more of an effort than others to alert one to investments maturing.

• Absa contacts the customer 40 days prior to maturity — in the mode of communication of your choice.

• FNB sends out a letter six weeks before maturity. Seven days before maturity, it follows up with an SMS.

• Nedbank sends a letter 50 days prior to maturity. It then sends an SMS and makes three attempts to call you.

"If we aren't able to get hold of the client telephonically, we send an e-mail informing them that we require instructions for their maturing investments," says Sisa Cikido, the bank's head of retail investments.

• Standard Bank customers are notified by SMS or e-mail seven days prior to the maturity date. To give new instructions you must visit a branch, says spokesperson Ross Linstrom.

Penalty will apply

FNB's Kumalo says the fee charged when a customer withdraws early is a "breakage fee" — as the customer has broken their contract with the bank — and is intended to cover the associated costs.

"For fixed deposits, the charge is 2.5% of the amount plus an admin fee, which is dependent on the channel where the breakage was initiated," she says.

Absa's Cele says early termination penalties vary, depending on the number of days to maturity of the investment. The maximum penalty is 5.75% (where there are four years or more remaining to maturity) and the minimum penalty is 1.15% (where there are two to 30 days to maturity).

Nedbank's Cikido says the bank charges a percentage of the capital plus a R300 administration fee.

"If the remaining term on the investment is less than 12 months, it's 1%, and if it's greater than 12 months, it's 1.25%."

Standard Bank's early redemption fees are calculated at 1% or one-10th of the interest rate carried by the deposit, whichever is the greater.

The pensioner is aggrieved saying the automatic renewal was never explained to her as it ought to have been at inception. In terms of the Financial Advisory and Intermediary Services Act all material terms of a contract should be pointed out to you.

The bank did e-mail notifications to her in September and November last year, but she somehow missed them.

In a gesture of goodwill, the bank paid her her full capital less R1,485 from the interest she would have received this month — a reduced penalty of 0.45%