Early withdrawal of joint fixed deposit only if there is mandate

Citing RBI circular, banks have been refusing early withdrawal of FDs.

Activist says banks have not created awareness about it among depositors

Banks will allow premature withdrawal by the surviving depositor in the case of joint fixed deposit and term deposit accounts in the event of the death of one of the two, only if there is a joint mandate from the depositors to do so as per the Reserve Bank of India (RBI) guidelines, which many customers are not aware of.

Consumer activist T. Sadagopan said there had been recent instances where the surviving depositors had approached banks for early withdrawal of fixed deposit accounts due to the death of the other account holder. Their requests had been rejected by banks citing the RBI guidelines.

In the case of joint fixed deposit and term deposit accounts, the joint holders choose between two mandates, “Either or Survivor” and “Former or Survivor”. In case of “Either or Survivor”, both the holders can operate the account while in the case of “Former or Survivor”, the former alone can operate the account when both are alive.

In both cases, banks are permitted to allow premature withdrawal of the deposit by the surviving joint depositor on the death of the other, only if there was a joint mandate from the depositors to this effect, according to the master circular on customer service by banks issued by RBI in 2015.

In the absence of a joint mandate, no pre-payment of the deposits would be allowed if the concurrence of the deceased joint holder had not been obtained as per the guidelines. If the operating instruction was “Either or Survivor” and one of the depositors died, no pre-payment of the fixed/term deposit may be allowed without the concurrence of the legal heirs of the deceased depositor. This would not stand in the way of making payment to the survivor on maturity, it said.

In the case of “Former or Survivor” mandate, premature withdrawal would require the consent of both the parties, when both of them were alive, and that of the surviving depositor and the legal heirs of the deceased in the case of death of one of the depositors, the circular said.

In its circular, the RBI had noted that many banks had neither incorporated such a clause in the account opening form nor had they taken steps to make the customers aware of the facility of such a mandate, thereby putting the “surviving” deposit account holder(s) to inconvenience.

It had advised banks to incorporate the clause in the account opening form and inform their existing as well as future term deposit holders about the availability of such an option.

Mr. Sadagopan alleged that despite clear instructions from the RBI, banks hadn’t created awareness among customers.