Proper grasp of bank rules a must

Bank deposits are safe means of savings at a reasonable but assu-red return; customers must know the rules.

Proper understanding of the regulations/ practices prevailing amongst the banks on key issues helps in effectively managing fixed depo-sits (FDs) with banks. The interest rates on FDs vary from banks to banks. Uniform rates for different period are offered for deposits up to Rs 1 crore. Differential rates on bulk deposits (Rs 1 crore and above) are offered. 

Subsequent interest rate changes shall not affect the deposits already opened.  For resident Indian senior citizens of 60 years and above (in case of joint accounts, senior citizen being the first holder) but not for NRIs, additional rate (0.25 to 0.75 per cent) is offered. Some banks also fix maximum limits for offering this incentive rate. The common method of calculating interest (PNR/100: P=principal, N=number of years and R=rate) is applicable only for completed quarters.

When the period is in less than a quarter or where the terminal quarter is incomplete, interest is paid proportionately for the actual number of days reckoning the year at 365/366 days.

To ensure liquidity, always prefer Unit/Flexi FDs (both on simple and compound interest) to prematurely close required amount and continuation of the remaining amount as per the original terms. For premature closure, the rate applicable for the period completed (prevailing as on the date of deposit) with penalty, if specified at the time of deposit, is paid.

No interest is paid, if closure is before completion of the minimum period of seven days. Alternatively, loan can be availed (75 to 90 per cent of deposit + interest accrued) at an additional rate specified by banks on the deposit rate. Avail loan against the deposits having lowest interest rate. Prefer Over Draft (OD, running account) to Fixed Loan as surplus funds can be parked and required amount can be withdrawn (within the loan limits) and save cost since interest is computed on the day-end balances.

While a fixed loan is to be closed on or before the due date, FD with OD can be renewed and OD can continue. Perhaps, keeping maximum amount in FDs, availing OD against FDs and prudently operating/managing the OD in lieu of a savings account can maximise net returns.

Out of the two options (loan and premature closure), which option is better to meet the liquidity?  The guiding factors for availing loan can be based on (1) duration of the deposits (on long duration deposits, the period completed is more than the residual period); and (2) temporary liquidity mismatch/the loan can be closed in near future.  Compare the loss on account of additional interest on loan with the loss on premature closure and decide.

When aggregate interest received is Rs 10,000 and above in a financial year from a bank – not from a branch, tax is deducted at source (TDS) on the entire interest amount at the time of payment of interest/ financial year ends, whichever is earlier.

To avoid TDS, non-IT assesses can submit Form 15G (F 15H for senior citizens) with PAN copy at the commencement of every financial year/ opening of new deposits. In joint accounts, TDS is in the hands of first holder. For receiving the full maturity value of compound interest FD, instruct the bank to deduct the TDS amount from SB account.

Renewal of FDs
Auto-renewal facility provided is for renewal of FDs on due dates for identical period/ scheme. If any change is required, decide on the period/ scheme depending upon the interest rates on the due dates/ specific requirement and inform the bank before due date. Nomination gets renewed along with the renewal. The period within which the overdue deposit can be renewed retrospectively from the due date differ from bank to bank.

The SB interest is paid from the due date till date of withdrawal of overdue deposits. Institutions/corporates not eligible to open SB accounts can open FDs for ultra-short duration, allows the FD to continue as overdue and withdraw the amount any time with SB interest. Banks pay a little more interest on non-withdraw able deposits (regulatory minimum Rs 15 lakh) and the right of premature closure is not available on these deposits.

You can also add or delete (in case of joint accounts) name/s by keeping the amount/duration of the original deposit uncha-nged. Banks display the list of unclaimed deposits (not claimed for a period of 10 years from the due date/ last operations) on their websites containing the names and address/the names of individuals authorised to operate the accounts with “find” option to search, along with the process to claim the amount.

The unclaimed deposits are transferred to RBI - Depositors Education and Awareness Fund (DEAF) – and as per the RBI’s June 15 annual report of RBI June 15, Rs 7,875 crores is outstanding. One can attempt to locate these deposits and initiate steps to claim.

Even though bank deposits are considered to be simple, secured, safe, liquid and convenient way of savings at a reasonable but assured return, customers must be aware of the basic rules/practices with regard their fixed deposits and thereby maximise the returns and liquidity.

(The writer is a Banking Faculty in ICICI Manipal Academy, Bengaluru)