If a person dies leaving deposits with any bank, generally nominees or legal heirs approach the bank to claim the deposit along with accrued interest. However, did you know that the amount of the interest payable on such deposits may vary from bank to bank?
Why the variation?
The Reserve Bank of India (RBI) has issued a directive leaving the issue of payment of interest on such deposits at the discretion of the individual bank provided that the bank’s boards lay down a policy to deal with the issue. No surprise then that banks have adopted different practices and the interest paid varies from bank to bank.
While most of the banks have adopted similar practices, some banks do it differently. The interest decision depends on the kind of account and the mismatch, if any, between the maturity date of the deposit and the time of death of the deposit holder.
Claim is made at the time of maturity: In such cases, most banks pay interest at the contracted rate—the rate at which the depositor parked the sum.
Claim is made before the maturity of deposits: If the nominee or the legal heir claims payment of the deposit before the maturity date, most bank pay applicable interest (not the contract rate) for the actual period for which the deposit remained with the bank. They also do not charge premature withdrawal penalty.
If the depositor dies before the date of maturity of the deposit but claim is made after the date of maturity: Most banks in such cases pay interest at the contracted rate till the date of maturity and simple interest (as operative on the date of maturity) for the period during which the deposit remained with the bank beyond the date of maturity. However, some banks pay simple interest as applicable on the maturity date or on the date of payment, whichever is less.
If the depositor dies after the date of maturity of the deposit: Banks in such cases pay interest equivalent to savings deposit rate for the period between the date of maturity and date of payment.
What is the practice in case of current account?
For balances in current accounts, RBI has mandated banks to pay interest to the tune of savings deposit rate, from the date of death of the depositor till the date of repayment to the claimant. If the deceased has a non-resident (external) account but the claimants are Indian residents, RBI has mandated that the deposit on maturity be treated as a domestic rupee deposit and interest be paid for the subsequent period at the rate applicable to domestic deposits of similar maturity.