Page 79 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes 3. FD in joint names: FDs can also be opened in joint names of two or more peons, which are
payable to either or survivor in accordance with the terms of the acknowledgement. The
problems faced by the banker before date of maturity are

(a) Request for untimely refund by one of the depositor
(b) Loan against FDR by one of the depositor
(c) Request for duplicate receipt by one of the depositor
In all these cases the banker should obtain consent of other depositor/s.
4. Payment before due date: Even though a FD is payable after expiry of defined period,
banks allow encashment even before maturity. In such a case, certain interest will be
charged for the same. According to the RBI directive, banks should not charge the penalty
in case of premature withdrawal for immediate reinvestment in another FD for a longer
term than the remaining period of the original contract.
5. Overdue deposits: If the receipt is not encashed on the date of maturity, the interest ceases
to run from that date. The banks allow interest as per RBI directives, if it is renewed.

Recurring account and fixed deposits come under the time deposit accounts.

Task Visit the branch in which you have an account. Ask about the different types of
accounts offered by them to the custome.

Caselet Fixed Deposits Benefit More from the Power of

Compounding

nterest rates may moderate soon. So, it’s a good idea to lock into the current high rates
being offered by bank deposits. But which deposit scheme should you go for — fixed
Ior recurring?
When interest rates on both are the same, fixed deposits score over recurring deposits.
And when a fixed deposit offe higher rates, it wins hands down — thanks to both better
returns and better compounding effect. Here’s why.

Fit-mover advantage: Say, a bank offe 9 per cent annually on both their fixed deposit and
recurring deposit of one-year tenure. The interest income is compounded on a quarterly
basis.
So, if you invest ` 12,000 in the fixed deposit, you get ` 13,117 at maturity at the end of one
year. On the other hand, a deposit of ` 1,000 each month for 12 months (totalling ` 12,000)
in the recurring deposit will cumulate to ` 12,597 at maturity, ` 520 less.
What explains this difference? In the fixed deposit, the entire ` 12,000 earns interest from
the start, while in the recurring deposit each ` 1,000 earns interest only after the instalment
is deposited.
Now, say, after depositing the recurring installments, you put the remaining amount
(` 11,000 after the fit month, ` 10,000 after the second, and so on) in a savings bank account
which earns interest at 7 per cent (the highest savings bank rate today). Even in this case,
the total amount at the end of one year comes to ` 12,999 — the sum of the recurring
Contd...

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