Operating a bank account may sound very simple to you and possibly you may be wondering why I am trying to write a blog on modes of operating bank account. Well the motive is to reflect upon different ways you can open your bank account in order to control who can operate your account and when can a person operate the account.
It is very handy to know these details as it may be of help while trying to open a bank account. My experience while dealing with bankers has not been very positive as most of them didn’t know the subtle differences between different modes of operating a bank account. Broadly, the following options are available when opening up a bank account:
- Jointly or Survivor
- Either or Survivor
- Any or Survivor
- Former or Survivor
- Joint accounts with Special Instructions
- Via Letter of Authority / Power of Attorney holder
- Minor account
Single Mode of Operations
This mode of operating a bank account is very simple and applies when you open a bank account in only one name. Hence the instruction given to the bank is ‘Single’, i.e. only the account holder shall operate the account. In case of death of the account holder, the proceeds shall be paid to the nominee or the legal representative of the deceased person.
When you have more than one account holders of a bank, the type of bank account is called a Joint Bank account. In case of a simple Joint mode of operation, both / all the account holders would have to sign a cheque in order to allow the cheque to clear. If for example, Mr. A & Mr B open a joint account with mode of operation “Joint”, then both Mr. A & Mr. B would have to sign together on the cheque. If only Mr. A or Mr. B signed the cheque, the respective bank won’t honour the cheque. In case any of joint account holder dies, the account can not be further operated and the proceeds shall be payable to the surviving account holder along with the nominee / legal representative of the deceased account holder.
Jointly or Survivor
Under this mode of operation of a Joint account, during the life time of the joint account holders, the cheque would have to be signed by both the Joint account holders (just like a normal Joint mode of operating a bank account). However, in a an event whereby any of the joint holder dies, the surviving account holder can continue to operate the account as if he was the single account holder. Alternatively, the proceeds of the account can be credited to the account of the surviving account holder. For example, if Mr. A & Mr. B operate their bank account in the mode of “Joint or Survivor” and Mr. A dies, then Mr. B can individually operate the account or transfer the proceeds to his own other bank account.
Either or Survivor (E o S)
This mode of bank account is opened when the number of bank account holders are more than 1. The account opened as Either or Survivor can be operated by any of the account holders and do not require joint signature of all account holders in order to operate the account. In case of our above example, if the account was opened under EoS mode, either Mr. A or Mr. B could individually operate the account as if they are the sole owner of the account. However, in case of death of any of the account holders, the surviving account holder can either continue to operate the account or take the proceeds into his own bank account.
Any or Survivor ( A o S)
This mode of operation is very similar to the EoS category. Infact people often speak upon EoS or AoS interchangeably. However there is a slight difference between “Either or Survivor” versus “Any or survivor” mode. Just like EoS, an account opened under AOS mode can be operated by any of the account holders without requiring the other account holder(s) to sign. However the difference is after any of the account holder dies, the right to operate lies with the surviving account holders (but jointly). They have to decide if they would like to continue with the account as Either or Survivor or take the proceeds out of the account. In case where all but one account holder remains alive, the balance is paid to the surviving account holders.
Former or Survivor
This account is opened jointly between more than one account holders. However, till the primary account holder is alive, the right to operate the account vests with him / her. After the death of the primary account holder, the right to operate vests with the surviving account holders after submission of necessary documents such as death certificates. It is necessary to clarify that while the primary account holder is alive, the other account holders can not operate the account. A slight different account operation mode is Latter or Survivor where by the second account holder shall operate the bank account till his / her death and only after that the surviving account holders shall be allowed to operate the bank account.
Joint Account Holders with Special Instructions
These types of bank accounts are more prevalent for corporate bank accounts where by the management wants to enforce internal controls based upon the materiality of the amount. In these accounts, the management specifies the limits upto which a single named account holder can sign a cheque and beyond which dual or even more than two account holders would be required to sign. For very high value transactions, it can also be mentioned that signature would be required from a specific named individual in addition to other named account holders. For example, for cheques upto Rs. 100,000 Mr. X can sign. Between Rs. 100,000 & 10,00,000 Mr. X & Mr. Y both need to sign. Any cheque beyond Rs. 10 lacs, signature of Mr. Z is required.
Via Letter of Authority / Power of Attorney Holder
In some accounts you can authorise a third party to operate your bank account in your name. In such cases, though the third party can sign the cheques, but can not deposit any cheques of their own into your account. Simply speaking only an authority to sign cheques or perform other functions such as create demand drafts, and other banking functions can be performed by the authority holder. Such accounts are more common in case of Non Resident Bank accounts (NRE / NRO) or current accounts. All the joint account holders needs to agree before creating an authority holder to the respective bank account.
Minor Bank account
According to Indian Majority Act, any one who is less than 18 years of age is classified as a minor. A minor above 14 years of age can open and operate saving bank account. However, a minor who is a student (literate) can generally open and operate bank accounts above 12 years of age. However any account operated by Minor themself would not be issued a cheque book – probably the reason behind that is – any contract with a Minor is not valid (as per Contract Act) and hence collection of cheques are not generally allowed in Minor operated bank accounts. A guardian can also open an account in the name of the minor and can operate it. Once the minor attains majority or dies, the guardian should not operate the account.
The author of this article is Banyan Financial Advisors. You can contact us on www.banyanfa.com .