Fixed deposits are time-tested, risk-free investment avenues that allow your funds to grow at a pre-given rate over a fixed tenure. Investors can choose from different types of FD accounts, including cumulative, non-cumulative, individual, and joint fixed deposits.
Investors who wish to pool their resources for a shared investment can opt for joint FDs. Up to three investors can open a joint FD account together. The primary account holder receives the interest earned from the investment. Joint FDs also offer shared access to the money once it matures, making them ideal for families looking to streamline financial tracking.
The RBI has laid down FD rules for joint accounts to make operations smooth and easy. As informed investors, you should carefully familiarise yourself with various joint account FD rules vis-a-vis operation, withdrawals, tax liabilities, and benefits.
Joint fixed deposit rules
- Operation: A joint fixed deposit account can be operated by the primary account holder or all the joint holders collectively. Account holders can amend this arrangement during the course of the investment tenure.
- Withdrawals: All joint account holders must agree and furnish a withdrawal mandate to the bank or NBFC. This mandate should adhere to the joint FD rules set by the RBI.
- Tax benefits: The primary account holder is eligible for tax deduction benefits on 5-year tax-saving FDs.
- Tax liability on interest: The interest income earned on the joint fixed deposit account is taxable. The interest earned is added to the primary holder’s annual income and taxed according to the applicable tax slab.
Joint FD rules for maturity and withdrawal
Joint fixed deposit account holders can provide one of the following mandates for the purpose of maturity payout access and premature withdrawals:
| Mandate | Implication for maturity | Premature withdrawal |
| Either or Survivor | Under this rule, withdrawal upon maturity can be made without signatures from both depositors. If either of the depositors passes away before maturity, the final balance is paid to the survivor upon maturity. | Premature withdrawal of FD funds requires signatures from both the depositors. If either of the depositors passes away before the maturity date, premature withdrawals can be completed only after securing consent from the deceased depositor’s legal heir. |
| Former or Survivor | Under the ‘Former or Survivor’ mandate, the final balance and interest (if applicable) will be paid to the primary depositor (Former) on maturity. The secondary depositor (Survivor) can withdraw the funds on maturity only upon the demise of the Former after submitting the primary depositor’s death certificate and fulfilling other essential formalities. | Premature withdrawals from the joint FD account would require signatures from both depositors. The consent of the Survivor and legal heirs of the deceased are required to make premature withdrawals after the demise of the Former. |
Investors should also note that joint FD holders with these maturity mandates can opt to allow premature withdrawals by the surviving joint depositor(s) upon the death of the other. According to joint FD withdrawal rules, all joint depositors must sign a mandate to this effect, either when opening the account or before maturity. This signed mandate must be deposited into the bank so that premature withdrawals can be made without consent from the deceased’s legal heirs. Additionally, if there are nominees to the account, they will only have access to the funds upon the Survivor’s demise.
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Advantages and limitations of a joint fixed deposit
Advantages
Joint FD accounts are beneficial for families in the following ways:
- Share in the maturity value: The account holders of a joint FD can share and access the maturity value as per the joint FD mandate. Families can keep track of the invested amount and expected returns easily and avoid any financial surprises.
- Easy sharing: A joint FD account allows family members based out of different cities to share and access the maturity value. They can also make easy premature withdrawals if needed.
- Simplified financial tracking: A joint FD account makes it easy to track, manage, and monitor your finances and those of your family members. Pooling resources makes it easy to plan for future financial goals.
Disadvantages
Opening a joint FD also comes with some potential disadvantages. Apart from cognising joint FD rules, investors also need to understand these disadvantages:
- Account seizure: If one of the joint FD account holders engages in criminal activities, all their bank accounts, including the joint FD account, may be seized. This can restrict access to funds for the other joint account holders.
- No loans against joint FDs with minors: Depositors opening joint fixed deposits with minors cannot obtain a loan against the FD corpus. This can limit your ability to raise immediate liquidity for emergency expenses without breaking the FD.
Conclusion
The joint account FD rules provide a detailed framework for managing shared investments. These rules are important for maintaining transparency and ensuring mutual consent among investors. By prioritising clear communication and legal compliance, they protect the interests of all the parties involved.
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