Joint Fixed Deposit Rules

Fixed deposits (FDs) are an ideal investment tool for risk-averse investors and come in different forms, like cumulative FDs or non-cumulative FDs. Not only that, they offer you the choice of applying individually or jointly. 

 

With fixed returns unaffected by market fluctuations, FDs provide a secure way to grow your savings. You can also customise the tenure to suit your financial goals, ranging from short-term to long-term periods.

A joint fixed deposit is a type of deposit that allows up to three people to open it together. While the rules and terms of individual FD are simple and common, there are a few joint fixed deposit rules that you should know. 

 

It works by allowing all account holders to share ownership, with the payout or operations based on the selected mode, which includes:

• Joint

• Joint or Survivor

• Either or Survivor

• Former or Survivor

• Latter or Survivor

• Anyone or Survivor

Being aware of the joint account FD rules ensures that you make decisions that benefit your financial health. These include:

• Operation of Account

A joint fixed deposit account can be managed by either one holder or all holders together, depending on the chosen operational mode. This setup can be modified at any point during the investment period to suit the preferences of the account holders.

• Interest Payout Options for Joint FDs

You can choose between two interest options. The cumulative option compounds the interest, paying it out along with the principal at maturity. The non-cumulative option, however, pays interest periodically—monthly, quarterly, or annually. This offers flexibility to meet regular income needs. 

 

Joint account holders can select the payout schedule that best suits their financial goals.

• Minimum Deposit

Like other accounts, the joint FD account also has a minimum deposit rule that you need to meet to open the account. The minimum amount varies with each issuer. You can check this under the issuer joint account rules section or by contacting the issuer.

• Withdrawal Policy

The joint FD withdrawal rules depend on the type of the account, which includes the ‘Either or Survivor’ or the ‘Former or Survivor’ account. 

 

Both the account holders can operate and withdraw from the former type of joint fixed deposit. On the other hand, the secondary holder can withdraw from the latter in case of the demise of the first holder.

If your FD operates under the ‘Either or Survivor’ FD rules, one does not require the signatures of both depositors for redemption at maturity. In the event of the demise of the first holder, the surviving holder can continue the investment. 

 

Once the deposit matures, they will receive the final balance with the interest accrued. Upon the survivor’s demise, the mentioned nominees gain access to the funds.

In the ‘Former or Survivor’ FD account, the secondary account holder can only access funds on the demise of the primary holder. However, they need to submit the primary holder's death certificate and fulfil other formalities to access the account.

 

In the event of the demise of the survivor before maturity, only the former can solely operate the account. On the demise of the former, in this case, legal representatives of the former can access the funds for withdrawal on maturity.

Anyone or Survivor Clause

This account involves more than two holders and does not need each holder to approve transactions individually. Instead, the account can be operated by any one of the holders, providing flexibility in managing the account.

 

The process ensures that one or more account holders can carry out transactions. This makes it easier for the group to manage finances without constant coordination. In the event of the death of one of the account holders, the remaining holders can continue to operate the account without disruption.

Nominee Clause

The nominee clause ensures that in case of untimely demise of all account holders, the nominated individual can inherit the FD and its interest. The nominee can then manage the account according to the agreed terms. 

 

This ensures that the process remains simple and smooth for the nominee, with no need for extra documentation or legal steps. It also makes it easier for the nominee to access and manage the funds without unnecessary delays.

Joint FD Premature Withdrawal Rules

Premature withdrawal of an FD is when you withdraw your funds before the completion of your tenure, and the rules for this are different. The joint FD withdrawal rules state that one needs the signatures of all the depositors to carry out a premature withdrawal. 

 

However, the rules require the signature of the heir of the deceased along with the signature of the surviving account holder. The account holders can modify these terms when they open the joint fixed deposit.

Tax Implications

The interest earned on a joint FD is subject to tax, which is added to the annual income of the primary account holder. This interest income is taxed-based on the applicable income tax slab for the primary holder.

 

In the case of multiple account holders, the primary holder is usually responsible for declaring the interest income unless otherwise specified. It is important to be mindful of tax obligations when investing in joint FDs, as failing to report the interest can lead to penalties.

A joint FD with a senior citizen offers the benefit of higher interest rates for the senior account holder. This interest rate advantage applies to the entire amount, making it an appealing choice for senior citizens looking to maximise their returns.

These deposits offer several benefits that can make managing your finances more convenient and secure. Some of them include:

• Easy Withdrawal for All Account Holders

All account holders can access the maturity amount or make a premature withdrawal. It is possible even if the members are located in different cities.

• Easy Financial Review for Family

Having a joint fixed deposit makes it easier for you to keep tabs on your finances and your family members.

• Lesser Financial Distress

All account holders have access to the information regarding their investment amount and the expected returns.

While they offer several advantages, here are a few potential drawbacks to consider:

• No Availability of Loan for FDs with a Minor

You cannot get a loan against your joint FD if it is with a minor.

• Limited Access to Funds for Seizure

Say one account holder commits a crime that leads to the seizure of their accounts. The authorities may limit the other account holder’s access to funds in the seized joint fixed deposit.

• Dependency on Joint Decisions

Decisions regarding a joint fixed deposit must be made collectively. That can lead to complications if there are disagreements between the account holders. It can, thus, delay or prevent certain actions, such as premature withdrawal or altering the terms of the deposit, causing potential frustration or inefficiency.

• Taxation

In a joint FD, only the primary account holder is eligible for tax savings under Section 80C, even if the contributions from all holders are equal. This means that only the primary depositor can claim the tax benefits, limiting the tax-saving opportunities for the other joint account holders.

The income tax benefits on joint fixed deposits apply only to primary account holders and not the secondary account holders. Additionally, for TDS, the banks will ask for the PAN information of the primary account holder.

When transferring a joint fixed deposit from one branch to another due to a change in address, here is how the process generally works:

1. Contact your original branch to initiate the transfer of the joint FD.

2. Request approval from the branch manager to transfer your FD due to a change of address.

3. Complete any necessary paperwork, including proof of your new address.

4. Both account holders may need to sign the documents for the transfer.

5. The bank processes the transfer while keeping the FD terms unchanged.

A joint FD can be opened by up to three individuals, such as family members, friends, or business partners. Minors can also participate with a guardian as the primary holder, while senior citizens can benefit from higher interest rates.

 

Co-owners of properties or business partners often open joint FDs for better financial management. It is important to define operating instructions, nominees, and tax responsibilities clearly to avoid complications later.

Renewing a joint FD is a straightforward process, though it may require all account holders to be in agreement before proceeding. Everyone involved needs to mutually decide whether to renew the FD or make any changes to its terms. Note that the policies may vary for different financial institutions.

 

When renewing, it is important to review the current interest rates, tenure, and payout options, as they may have changed since the initial deposit. Additionally, account holders should ensure that all necessary documentation is up to date, which may include providing updated identification.

When opening a joint fixed deposit, understanding the key aspects is crucial to avoid future complications. Here are some common mistakes you need to avoid when setting up these deposits:

• Lack of Clear Mutual Agreement

Before opening a joint FD, ensure that all parties agree on the purpose, tenure, and terms of the deposit. Failure to communicate clearly can lead to misunderstandings, especially if one account holder’s circumstances change unexpectedly.

• Not Understanding the Survivorship Clause

The survivorship clause determines who inherits the FD if one account holder passes away. It is important to understand how this clause works, as it can prevent complications in claiming funds or distributing them according to the original intent.

• Ignoring Legal Implications

Joint FDs may become part of legal proceedings in cases such as bankruptcy or divorce. Not being aware of these legal consequences can cause complications. Consulting a legal advisor beforehand is crucial.

• Premature Withdrawal Issues

Premature withdrawal of a joint FD typically requires the consent of all involved parties. If one account holder needs the funds urgently but others disagree, it can lead to conflict or delays.

• Assuming Equal Ownership

While joint FDs generally involve equal ownership, this can affect how interest income and decisions are divided among holders. Misunderstanding this aspect can lead to confusion about each holder’s rights and responsibilities.

• Overlooking Relationship Dynamics

Opening a joint FD is a financial commitment that can affect personal relationships. Disagreements, changes in circumstances, or events such as divorce can create disputes over the funds. Maintaining open communication and clear agreements can help prevent these issues.

• Not Considering Withdrawal Consent Requirements

All account holders must agree before making any withdrawals or closures. Failing to recognise the need for joint consent can cause misunderstandings or delays if one holder acts unilaterally.

Joint fixed deposits can be a secure and efficient way to manage savings for multiple account holders. This offers flexible interest payout options and the potential for higher returns when senior citizens are involved.

 

However, it is crucial to understand the associated rules and potential drawbacks, and the importance of clear agreements between account holders.

 

By understanding these aspects, you can avoid common mistakes like miscommunication, premature withdrawals, and legal complications. When considering a joint FD, careful planning and mutual understanding are key to ensuring the deposit serves its intended purpose effectively.

 

Start your investment journey on Bajaj Markets. With simple processes, you can get some of the best FD interest rates from leading issuers.