Bank Deposits: Everything you need to know

[This post answers questions about the rules related to  addition or deletion of names in FD, TDS in case of joint accounts, interest calculation in leap year, conditions for deposits held in minor’s name,  transfer of fixed deposits,  interest payment on prematurely closed deposits, renewal of Overdue deposits, and deposits in the joint names of Resident and Non-Resident etc.]

Whether addition or deletion of name/s in FD allowed?

The addition of name is allowed in FD at the written request of the sole depositor if the deposit is in his sole name. In the case of the term deposit, in the joint names of two or more persons (including ‘E or S’ , Anyone or Survivor), addition/deletion of names in the account would be permitted only at the written request of all the depositors. In the case of the deposit in the joint names of “Former or Survivor” deletion of the “Former” is not permitted.  In the event of the request for addition/deletion of a name is received from the survivor(s), after the demise of one or more of the joint depositors, the legal heirs of the deceased depositor(s) and the survivor(s) should give the consent letter. At least one original depositor name shall continue in the deposit after addition/deletion. No addition or deletion of the name(s) is permitted in the case of deposits in the names of minors. Either the period of term deposit or amount of deposit cannot be modified while adding or deleting names of the depositors in the term deposits.

What are the conditions apply for maintaining fixed deposits in the name of Minors?

A natural guardian in the joint names of himself and the minor, payable to either or survivor, the guardian appointed by a competent court in case of deposits to be maintained in the name of any minor, a minor aged ten years or above in his/her single name to be operated upon by himself/herself are allowed to maintain fixed deposits. Banks may, however, keeping in view their risk management systems, fix limits in terms of age and amount up to which minors may be allowed to operate the deposit accounts independently. The deposits kept in the sole name of the minor aged 10 years and above, are not eligible for the advance. No premature payment of the deposit will be allowed. As much as the deposit is opened by the guardian on behalf of the minor the deposit is payable to the natural guardian on the due date. In the event of the exigency, the natural guardian can also borrow against the security of deposits in the name of a minor provided money borrowed is utilized for the purpose of minor’s benefit.  The natural guardian shall submit a written declaration to the bank that the borrowed money will be utilized for the benefit of the minor. In the event of a minor attains majority, on or before the due date of the deposit, the amount will be payable only to the erstwhile minor and not to the guardian, irrespective of whether guardianship certificate is obtained or not. In the case of deposits opened by a natural guardian in the joint names of himself and the minor with “E or S” mandate the amount will be payable to the erstwhile minor or the natural guardian on the due date. 

Whether deposit renewed/closed after maturity date is eligible for the overdue period interest?

The rate of interest payable by banks on overdue deposits differs depending upon the instances like renewal or not- renewal of the deposit for a minimum stipulated period, death of the depositor before the maturity of the deposit, death of the depositor after the maturity of the deposit, interest payable on the deposit amount left unclaimed after maturity and later claimed from unclaimed balance accounts etc. Banks are at liberty to lay down their own policy (through their Board) regarding all aspects concerning renewal of overdue deposits, which shall be a non-discretionary and non- discriminatory, transparent policy. The terms and conditions of renewal including interest rates shall be known to the customers at the time of acceptance of their deposit. To know more, read my article by clicking on the following link  ‘Bank policies for payment of interest on overdue deposits’ .

Whether a Non-resident can open a deposit account in the joint names of Resident and Non-Resident?

NRE deposits should be held jointly with non-residents only. NRO accounts may be held by non-residents jointly with residents. As per RBI guidelines (APDir 13 dated 15.9.2011,), Non- resident Indians (as defined in FEMA no.5) are permitted to open Non-Resident External (NRE)/Foreign Currency Non-Resident (FCNR) accounts with their resident close relatives on “Former or survivor” basis. The resident close relative may be allowed to operate the account as Power of Attorney (POA) during the lifetime of NRI. Operations in the account in terms of Power of Attorney is restricted to withdrawals for permissible local payments in rupees, remittance of current income to the account holder outside India or remittance to the account holder himself through normal banking channels. 

Whether term deposit can be transferred from one person’s name to another?

Term deposits can be transferable from one branch of the bank to another. However, the deposit cannot be transferred from one person’s name to another.

Whether premature closure of bank deposit is allowed?

A bank will on request from the depositor allow withdrawal of a term deposit before the maturity date.  The individual banks will have the freedom to determine their own penal interest rate of premature withdrawal of term deposits and in the certain limit of small deposits, the bank may waive the charging of penal interest which the bank notifies its customers along with the deposit rate.  While closing a deposit before the maturity date, interest on the deposit for the period that it has remained with the bank will be paid at the rate applicable to the period for which the deposit remained with the bank and not at the contracted rate. No interest is payable if the deposit is closed before completion of the minimum period prescribed by the bank. The bank, at its discretion, may disallow premature withdrawal of large deposits held by entities other than individuals and Hindu Undivided Families, which condition the depositors, should be made aware at the time of accepting such deposits. According to the new guidelines of RBI, banks will have the discretion to offer differential interest rates based on whether the term deposits are with or without-premature-withdrawal-facility. However, as per the guidelines of RBI, all term deposits of individuals (held singly or jointly) of ₹ 15 lakh and below shall be allowed to close before maturity.

How is interest calculated in a leap year?

Where deposits payable in less than three months or the terminal quarter is incomplete, Interest shall be calculated on actual numbers of days divided by 365 days in a year. Some banks, are adopting the method of reckoning the year at 366 days in a Leap year and 365 days in other years. It is left to the option of concerned Bank to determine the basis of numbers of days in a year.

How tax deducted at source for Joint accounts?

Income tax would be deducted at source from the interest on time deposits (deposits excluding SB A/cs) with banks at prescribed rates as per section 194- (A) of the Income tax act 1961, if the amount of interest credited or paid during a Financial year exceed Rupees Ten thousand. Banks would also take into account the interest accrued for calculating the cut-off point of Rupees Ten thousand, during the accounting year in respect of the particular depositor. In the case of Joint account deposits, the interest earned by the deposit for the year will be reckoned in the name of the first holder (first named depositor) for TDS calculation purpose. In the case of Minor accounts, the interest would be clubbed with interest on deposits of Parents/Guardian. In respect of Cumulative Deposits/ Reinvestment of Deposits (where deposits are payable on maturity with accrued interest, the tax shall be deducted at source on the interest at the end of the accounting year or at the time of credit to the account of the payee as per option provided by the customer. 

What is the minimum-maximum tenure allowed for fixed deposits in Banks?

The commercial banks in India accept domestic fixed deposits from their customers for the periods ranging from 7 days to 120 months. In the case of deposits in the name of minors, the deposits can be more than 120 months provided the bank is convinced about the necessity to do so. Some banks accept fixed deposits for a minimum period of 15 days for the deposit amount of below Rs.100 lakh.  NRE deposits are accepted for 1year to 10 years and FCNR for 1 year to 5 years.

Whether the banks can issue multiple receipts for the deposit amount?

The term deposit account holders at the time of placing their deposits can give instructions with regard to multiple receipts for the amount deposited by them. Bank on acceptance of term deposit money issues as many FD receipts to the depositors as required. Normally FD receipts are issued for the minimum amount of Rs.1000/-. The deposit receipt so issued is treated as a distinct contract which contains full details of the deposit, like date of issue, name/s of deposit holder, period of deposit, due date, applicable rate of interest/maturity value in case of RDP etc., and the receipt is signed by two authorized officers of the bank.

How is interest calculated for reinvestment (cumulative) deposits, monthly interest, and quarterly interest fixed deposits?

In a reinvestment fixed deposit scheme, the interest accrued on deposit at the end of each quarter is invested along with the principal. At the end of the quarter, the interest and the principal are both rolled over, and the interest is calculated on the total sum in the next quarter. As per RBI directives to Banks that the interest shall be paid only on a quarterly basis and any monthly payment would be only to a discounted value. As much as the depositor opts for interest to be paid to him on the monthly basis then the monthly interest payable shall be little less than interest calculated at simple rates.

Whether bank pays interest for the intervening holiday if the maturity date of a deposit falls on a holiday?

If the maturity date of a deposit falls on a holiday or non-business working day, interest at the originally contracted rate shall be paid for the intervening holiday/non-business working day irrespective of whether the depositor seeks repayment on the succeeding working day or later on. The interest so payable would be on the maturity value in the case of Reinvestment Deposit Plan /Cumulative Deposit Plan and Recurring Deposit accounts and in the case of other term deposits on the original principal amount. This rule applies to domestic as well as Non-Resident deposits. However, in core banking system, if the customer opts for closure and asks the bank to credit the proceeds to his/her  SB/CA account, it will be auto closed on the date of maturity, irrespective of holiday or working day and amount and proceeds will be credited to depositor’s account.

Whether accounts which are frozen by the enforcement authorities are eligible for payment of interest?

Payment of interest on accounts frozen by banks: When a bank freezes the deposit of a customer, on the basis of order received from the enforcement authorities, a request letter from the depositor for renewal may be obtained from the depositor and renew the deposit for a period instructed by the depositor. In case the depositor does not exercise his option of choosing the term for renewal, banks may renew the same for a term equal to the original term. No new receipt is required to be issued. However, the suitable note may be made regarding renewal in the deposit ledger. Renewal of deposit may be advised by registered letter/speed post/courier service to the concerned Government department under advice to the depositor. In the advice to the depositor, the rate of interest at which the deposit is renewed should also be mentioned. If the overdue period does not exceed 14 days to the date of receipt of the request letter, renewal may be done from the date of maturity. If it exceeds 14 days, banks may pay interest for the overdue period as per the policy adopted by them.

Can you explain the rules for payment of additional interest for the senior citizen, staff, ex-staff, and their spouses?

Banks at their discretion may offer additional interest to the resident senior citizens (of age 60 years and above), Staff /ex-staff (including the spouse of deceased staff/ex-staff) over and above the rate of interest admissible to general public. (Example: plus 0.25% p.a., 0.40% p.a., plus 0.50% p.a., maximum up to plus 1.00%). At present, most of the banks offer 0.50% additional interest to Senior Citizen over and above the rate of interest admissible to general public. Senior Citizens/Staff/ex-staff/spouse of deceased staff/ex-staff may check the additional interest offered to them by the concerned bank before depositing their money.

Related Article on Bank deposits:  (Category: Deposits)

• Salient features of FCNR (B) and NRE deposits
• Resident Foreign Currency Account in India
• Why NRIs need NRO account?
• How to deal with bank account classified as dormant or inoperative
• Deposit rates of major banks in India