Should You Open a Joint Fixed Deposit? Key Rules to Consider

Many people aim to safeguard and grow their savings wisely. They may choose to invest or deposit their money in avenues that offer assurance and potential growth. It’s crucial for them to feel confident in the reliability of the financial institutions they entrust with their funds.

One commonly chosen method for saving is through fixed deposits. These accounts involve depositing a certain amount of money for a predetermined period, during which it earns interest. Upon maturity, the principal amount along with the accrued interest is returned to the investor. There are two primary types of fixed deposits:

  1. Cumulative Fixed Deposits: Interest is received in a lump sum at the end of the term.
  2. Non-Cumulative Fixed Deposits: Interest can be received periodically throughout the investment period.

Individuals have the option to open fixed deposits individually or jointly, often with family members. However, it’s essential to understand the regulations governing joint fixed deposits before making an investment decision.

What is a Joint Fixed Deposit?

A joint time deposit allows up to three investors to open a fixed deposit (FD) account together. All account details, including information about all depositors and the address of the first depositor, are recorded. However, it’s important to note that interest income on joint-time deposits is only paid to the first depositor listed on the account. Therefore, the first depositor holds the primary responsibility in a joint-time warranty arrangement. Individuals engaging in such agreements often use terms like “either or survivor,” “pay together,” or “pay each depositor.” Before depositing funds in banks or other financial institutions, investors should be aware of the rules governing joint fixed deposits. These regulations cover aspects such as the minimum deposit required for joint FDs and procedures for withdrawal or premature withdrawal.

Joint Fixed Deposit Rules in India

Here are the rules that you must keep in mind while opening a Joint Fixed Deposit in India:

1. Account Management

A joint fixed deposit account offers the flexibility of being managed by either the primary holder alone or by all joint holders acting together. This allows for adjustments to be made as circumstances change.

2. Withdrawal Authorisation

For withdrawals, all joint account holders will need to sign off and follow the Reserve Bank of India (RBI) guidelines.

3. Tax-Saving Fixed Deposits

If the fixed deposit is for tax-saving purposes with a maturity period of 5 years, only the primary account holder can claim tax deductions associated with the deposit. Therefore, tax benefits are limited to the primary account holder.

4. Taxation of Interest Income

The interest that you earn on a joint fixed deposit account is taxable. However, the primary account holder is responsible for reporting the interest income and fulfilling any associated tax obligations in their tax returns.

Joint Fixed Deposit Withdrawal Rules

The withdrawal rules for joint fixed deposits vary based on the type of account, such as ‘Either or Survivor’ or ‘Former or Survivor’.
In ‘Either or Survivor’ accounts, both holders can withdraw funds. If one holder passes away, the surviving holder can continue managing the investment. At maturity, the final balance, including accrued interest, is paid out. If the surviving holder also passes away, nominated individuals gain access to the funds.

In ‘Former or Survivor’ accounts, only the secondary holder can access funds upon the demise of the primary holder. However, they must provide the primary holder’s death certificate and complete necessary formalities. If the survivor passes away before maturity, only the former holder can manage the account. Upon the former holder’s demise, their legal representatives can access the funds upon maturity.

Tax Benefits

Understanding the tax implications of joint fixed deposit withdrawals is crucial. Here are the key points to consider:

1. Income Tax Benefits:

Tax benefits related to joint fixed deposit accounts are applicable solely to the primary depositor. Other account holders in the joint account do not qualify for these benefits. Consequently, any tax advantages, such as deductions or exemptions in income tax, will apply exclusively to the primary account holder.

2. Tax Deducted at Source (TDS):

TDS is a tax deducted by the bank or financial institution on the interest earned from fixed deposits. In joint fixed deposits, only the PAN of the primary account holder is considered for TDS purposes. As a result, TDS will be deducted based on the PAN provided by the primary account holder.

Joint Fixed Deposit Rules for Premature Withdrawal

Withdrawing money from a joint fixed deposit before it matures (early withdrawal) is different from regular fixed deposits. Here’s what you need to know:

  • Standard Penalties Apply: As with regular FDs, there are usually penalties for early withdrawal.
  • Both Signatories Required: Both account holders must sign the withdrawal request for early access to funds.
  • In Case of Death: If one depositor passes away, both the surviving account holder and the deceased’s legal heir(s) need to agree to withdraw the money early.

There might be exceptions to these rules depending on the terms agreed upon when you open the account. Be sure to ask the bank representative about any specific terms regarding early withdrawal for your joint fixed deposit.

Joint Fixed Deposit Rules for Transferring Accounts

Today, many working professionals prioritise banks that make it easy to move their accounts. Life changes, you might move to a new place and that often means needing to transfer fixed deposits between branches. Luckily, transferring joint time deposits from one bank branch to another is simple. Just reach out to your current bank branch manager for approval to transfer the joint fixed deposit account. Then, request the transfer to the new branch within the same bank. Once the necessary steps are done, your joint savings account transfer request will be approved.

Closing Thoughts

While joint fixed deposits offer benefits like shared access and potential for growth, it’s crucial to understand the account rules and responsibilities beforehand. Carefully consider factors like account operation, withdrawal procedures, tax implications, and premature withdrawal penalties before deciding if a joint fixed deposit aligns with your financial goals and risk tolerance. Discussing these details with all joint holders ensures everyone is on the same page and avoids potential complications down the road.

Frequently Asked Questions (FAQs)

1. What happens if I need to withdraw money early from a joint fixed deposit account?

Early withdrawal requires the agreement of all account holders. If one holder passes away, both the surviving account holder and the deceased’s legal heirs must consent to the withdrawal.

2. How does a joint FD work?

Up to three individuals can open a joint FD together. The primary account holder receives the interest income generated from the deposit.

3. Can all holders manage the funds in a joint fixed deposit account?

This depends on the setup chosen when opening the account. You can decide if all holders or just the primary one can manage the funds.

4. Do all joint account holders benefit from tax breaks on the interest earned?

No, only the first account holder listed on the account can claim tax benefits like deductions or exemptions on the interest earned.

5. What are the different terms that govern how a joint fixed deposit account functions?

Terms like ‘either or survivor,’ ‘former or survivor,’ and ‘survivor’ determine how account holders can access and withdraw funds.

6. Who is responsible for paying taxes on the interest earned from a joint fixed deposit account?

The primary account holder is responsible for reporting and paying taxes on the interest earned by the joint FD.

7. Can I get a loan against a joint fixed deposit account if one of the holders is a minor?

Usually, no. It’s generally not possible to get a loan using a joint fixed deposit account if one of the holders is a minor.

8. What are some of the drawbacks of having a joint fixed deposit account?

There are a few limitations to consider. These include potential disagreements on decisions or withdrawals, issues arising from unequal contributions, and limited access to funds if the account is seized due to the criminal activity of one holder.

9. Can one person withdraw money from a joint account without the other person’s knowledge?

This depends on the account type. In some cases, with terms like “either or survivor,” either holder can withdraw funds regardless of who deposited the money. It’s important to clarify the withdrawal requirements with your bank when opening the account.