Modes of Operating Bank account

Cheque Book
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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.

Cheque Book

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:

  1. Single
  2. Joint
  3. Jointly or Survivor
  4. Either or Survivor
  5. Any or Survivor
  6. Former or Survivor
  7. Joint accounts with Special Instructions
  8. Via Letter of Authority / Power of Attorney holder
  9. 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.

 

Joint Holders

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 .

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37 Replies to “Modes of Operating Bank account”

  1. I have been a banker for so many years but was not aware of so many differnt modes of operating a bank account. Great insight.

  2. nicely explained. most people do not know all these

  3. Sec 26 of NI Act provides that minor can validly draw a cheque & he bind all parties except himself .. This contradict ur point ” Minor themself would not be issued a cheque book”

  4. Anirban,
    You are right for quoting NI Act. However, for the exact reason that Minor can not bind himself by issuing a cheque, probably this is the reason why banks don’t issue chequebook to Minors. If you come across a bank which gives this facility, please update this on my blog.

  5. sir,
    i am an NRI..but holding resident savings account with say,private bank X..where as i also have a NRI acct with say,nationalized bank B, that was opened as part of my nri home loan..i usually spend 4 months in a year in india and i am employed abroad..i do have all my residential proof in my residence in india as well with which i was able to open my resident savings with private bank X..

    now my question is..

    1. is it mandatory for me to inform private Bank X to change it to NRI account
    2. will i lose any benefit if i do that..
    3. if i dont convert this to NRI acct, and if i get audited, will i end up in any issue..
    4. which one do u recommend..let it be as a resident savings or convert it to NRI acct..
    5..the only benefit i see and for which i didnt convert this to NRO acct is that .,if i covnert this to NRO acct..then i will lose that upto 10,000 no TDS feature ,that is usually for residents as i understand.

    i was never able to get a clear cut answer for the above even from the bank representatives for this.

    please clarify

  6. Soniya,
    To be on the right side of the law you should convert your resident account into a NRO account. You have rightly mentioned that there is major disadvantage except the 10K no TDS feature. Plus every single Rs. of interest on NRO account will attract 30% TDS. You can recover that all by filing a tax return in India.

  7. sir/madam,

    i have a resident savings acct so far with icici.. i recently got a offer to work in abroad and working on getting my resident savings acct to NRO savings acct.

    like to know the following –

    1. how does the TDS works for resident savings and NRO savings acct – what way do they differ
    2. i heard there is some exemption form that we could get from tax authority office and submit it to the bank,so that they don t withhold TDS on my NRO savings acct until the 2 lakh exemption limit is reached..is this true..what form is it..i want to do this to avoid the hassle of going through tax filing inorder to get the TDS deducted

    please clarify

  8. Goswami,
    1. Resident account does not attract TDS while NRO attracts flat 30% TDS. That is the only difference.
    2. I am not aware of any such provision whereby you could submit any form to avoid TDS. I am aware of only one way – filing tax returns annually for your refund of TDS.

  9. hello,

    kindly please clarify me on the following;

    i was an NRI and just moved recently to india..opened resident savings acct with both
    sbi and icici..i would like to understand the below.

    1, at point of time during the year, is the TDS usually deducted. will it show in my account or wll i get a TDS deduction certificate as such.
    2. will i have a TDS deduction or TDS deduction certificate only if my income (from savings and fd interest) cross 10k..otherwise there would be NO TDS..is that right
    3. my wife was a resident here so far….she also wanted to know if she can go back for the last 5 years and check if there is any TDS that has even been deducted, that she could claim based on her NRI residency status in the past..

  10. Venu,
    1. TDS is deducted every time the interest is paid. You would see only net interest being credited in your account. You can ask the bank for a TDS certificate or check Form 26AS online.
    2. TDS not deducted on Saving account. You are correct on FD interest.
    3. She can go online on Form 26AS and check the status of her TDS for past years. You can check this link for more details on Form 26AS http://insight.banyanfa.com/form-26as-how-much-tds-got-deducted/

  11. sir,

    when ever we dont get the required services from the banks – be it
    nationalized or private banks..what is the higher authority that we could take the matter to.
    how seriously does the bank ombudsmen take the complaints and the do banks act to these complaints very well..or is there a RTI required.
    i am going through some service deficieny with one of the bank from whom i had taken a home loan and it is with a nationalised bank..so asking..

  12. sir
    i wanted to open a savings account for my mom in india.i live in US..
    but the thing is , i would like to understand whether are these savings account from banks in india backed up by any sort of insurance.in the sense, here in the country i live, if any
    fraudulent transaction occurs in our account..the banks gives us a immediate reversal for those charges and they will start the investigation after that..
    is that the same case with atm cards and accounts provided by banks in india.if there is any fradulent activity on our account..how is the amount reclaimed…which banks accounts in india are well protected and insured , that is should go for..

  13. Sarala,
    In first case you need to make a written complaint with the respective bank. If the bank rejects your complaint, it is only then you can complain at the Ombudsman. The detailed process can be downloaded from

    RTI can only provide you information. You can use it to get the procedure related information to get the idea of deficiency in service. But for complaint, Ombudsman is the best way.

  14. taxlearner says:

    sir,

    i had taken a car loan at sbi – at the rate of 10.45% per annum

    now, as of july 1st- i had a outstanding balance of 7.5 lacs
    now, on july 10th,i made a payment of 1lakh and then on july 15th, i made a
    payment of 50k..
    and so currently outstanding balance is 6lakhs.


    so now, when the interest is calculated on july 31, how much it would be and how is it calculated.

    will this be a simple or compound interest.

    i was never able to get the interest matched with my calculation ( not sure what i am missing) but at the same time i dont question the integrity of the calculation of my banking system..which is with a nationalized bank…

  15. Ameya,
    I can very well appreciate the features you are after. Unfortunately, the only protection on saving account is an insurance of upto Rs. 1lac in case the bank goes bust. There is no sort of insurance on fraudulent transactions / charges. However, if the account holder informs the bank of a fraud, any subsequent transactions are bank’s responsibility.

    In the current scheme of things, there are not many such cushions as are available in US.

  16. Hi,
    Interest depends upon if SBI uses daily or monthly reducing balance method. I believe SBI is one of the few banks following Daily method. in that case, while the interest is applied to your loan account on a monthly basis, the interest is calculated on principal outstanding after every day. Any prepayment done before the EMI date goes towards reducing the principal amount. You can always ask the bank for the exact interest calculation method.

  17. sir,

    what exactly classifies someone as an NRI-

    in my case

    i work in US..and employed by an employer based out of US..
    but my job requires i spend 6-7 months at times in a year in india,at times, to take care of an offshore branch here.

    so, am i really a NRI now..or how it works.

    till date i have both NRI and resident bank accounts.and all my home loans were NRI loans.

    please clarify

  18. For banking purposes, the definition of a NRI is mentioned under FEMA. As per FEMA “person resident outside India” means a person who is not resident in India. The definition of a “person resident in India” means-
    (i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include-
    (A) a person who has gone out of India or who stays outside India, in either case-
    (a) for or on taking up employment outside India, or
    (b) for carrying on outside India a business or vocation outside India, or
    (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

    (B) a person who has come to or stays in India, in either case, otherwise than-
    (a) for or on taking up employment in India, or
    (b) for carrying on in India a business or vocation in India, or
    (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

    Looking into your case, you should be a Person resident outside India as you gone outside India for employment. However to avoid Income Tax complications, please ensure that you are not in the country for more than 182 days in one year.

  19. sir,

    i have a icici gold debit card that says there is a personal coverage of upto 5lakhs.
    i got this card because i am a high network customer with them.
    i would like to understand how does the above coverage differs from a mediclaim policy
    does that mean with the above coverage..it is not required for me to buy any separate mediclaim policy

  20. Hi Payal,
    Apologies but there is no term such as ‘Personal coverage’. Could you provide the exact type of insurance provided by the Credit Card. They should be able to provide you policy documents if such a policy is provided in the card.

  21. Razibul Hassan says:

    Great Article. That explains the different modes of Bank account operation pretty clearly.

  22. Hello, I have maintained saving bank account in SBI last 6 year but was not aware of so many differnt modes of operating a bank account. thanks for sharing such a use full information Thanks Ravi

  23. Rishidev Arya says:

    Thank You very much. It’s a knowledgeable informative article

  24. can we make a minor a survivor in former or survivor joint account?

  25. Sumit Upadhyay says:

    Dear Sir

    need your clarification on below mentioned issue :
    i am having a joint individual current account in IDBI bank ,in which mode of operation is jointly .
    Can bank issue bank statement with single sign or can bank mark freeze on bank account on single sign ?

    Plz clarify …..

  26. Sumit,
    I am not sure if I can fully answer your query. Generally the bank statements mention the joint account holder’s name. Joint mode of operation may be of several types. The most common one is Any or Survivor where any one of the holder and operate the account. I am not sure if I understand your freeze concept. Please can you further clarify ?

  27. padmanaban says:

    Sir, A.B and C are opening SB account. After the death A the account may be operated by B or C.Please clarify the A/c is E or S or surviors .

  28. Hi Padmanaban,
    What you are mentioning looks more like Former or Survivors.

  29. lalitha nair says:

    if a person put fixed deposit an a private bank and keeping a nominee .and asking the private bank to put monthly income in to government bank account presently he is holding putting monthly interest in this government bank.deposit duration is 3 years.if that person dies can any one operate this account..if so what is the rule .

  30. Lalitha – sorry your query was not clear.

  31. manish pathak says:

    What will be operation mode of joint account where all the individuals are illiterate?

  32. Sir, I opened one E or S account in Andhra Bank, Redhills, Chennai. My mother and myself operated the account individually. My mother expired on 14.2.2012. Since then, the bankers are not allowed me to operate the account and it is freezed by bankers. Now they are asking death certificate of my mother which I have not received urfortunately. It is clear that it not joint and account. What can I do. Please help.

  33. Hi Ramesh,
    The bank would definitely need death certificate to get the account name corrected and moved later into your individual name, but they should not freeze it as it is a E or S account. You must file a complaint to get this account re-instated.

  34. Manish,
    A person does not need to be literate to be able to open a bank account. All modes of operations are available for people who are not literate. They need to be helped by some one to understand their requirements and get the best mode of bank operation for the need.

  35. Arijit Mukherjee says:

    Dear Sir/Madam

    i have an either or survivor account with my wife in bank of Baroda.Right now I want to convert this account in single account and my wife will be the account holder.Will it be possible.

  36. Please explain two brothers or two friends can open bank account with instructions of E or S?

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