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December 11, 1999


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"How can I ensure that I earn the maximum possible interest on my deposit while ensuring that I can make withdrawals when I want?"

The Rediff Money Channel presents everything you wanted to know about personal banking, but didn't know whom to ask. Kannnan Ranganathan, who has over 10 years of experience in banking and financial services, is here to remove all your doubts.

Readers Note: Please keep your questions short.

I had a fixed deposit with a bank, which matured on November 1, 1999. As I was not in town I was unable to renew the deposit on the maturity date. I approached the bank on December 6, 1999, explained the situation to them, and asked for interest till date. This was however refused by the bank. What can I do to ensure that I receive interest?

--Madhav Patil

You can request the bank to renew the deposit for a period of 30 days from November 1. RBI allows banks to use their discretion, to pay interest on overdue deposits only if the same is renewed. The rate of interest would be that offered by the bank for a 30 day deposit as on November 1. If the bank is amenable, this would protect your "interest".

I have a sum of Rs. 125,000/-, which I would need to draw in stages: Rs. 25,000/- after 1 month, a further Rs. 25,000/- after 60 days. There may also be a number of small withdrawals in between. How can I ensure that I earn the maximum possible interest on the sum, while ensuring that I can make withdrawals when I want?

-- Mirinda Joseph

Most banks offer the facility of a cluster deposit, wherein your deposit is split into smaller deposits or clusters. The cluster size varies from bank to bank. Some banks offer clusters as small as Re. 1/-. What this means is that with a cluster size of Rs. 100/-, your Rs. 125,000/- deposit is treated as 1,250 separate deposits of Rs. 100/- each. This way, not only can you withdraw money when you need, but you earn better interest.

The smallest numbers of clusters needed to cover your withdrawal are broken and the balance continues to earn the rate of interest applicable to an unbroken deposit. On the deposits that are broken, the bank, will of course charge you a penal rate, which would be the deposit rate for the broken period minus penalty (which normally could go upto 2% p.a.) In choosing banks, pay heed to the size of the cluster ("small is beautiful" in this case), the interest rate and the penalty levied on premature withdrawals.

I have a number of deposits with a bank in the suburbs of Mumbai. The total of the deposits is about Rs. 200,000. One of the deposits with a maturity value of Rs. 10,525 fell due in November 1999 and I requested the bank to give me the maturity proceeds in cash. The branch manager refused to do so, stating that he could only pay be means of an account payee cheque or by crediting my savings account. Is he right in doing so?

-- P L Srinivasan

As per the Income Tax Act, "no branch of any bank can repay any deposit where the aggregate amount of the deposits held by a person in his own name or jointly with any other person on the date of such repayment together with interest payable is Rs. 20,000/- or more except by account payee cheque, payorder or by crediting the proceeds to a savings/current account of the branch in which the account is held".

In other words, yes, the manager is within his rights. Of course, you could always cock a snook at the manager, by crediting your savings account and withdrawing cash. Here the old adage about putting all your eggs in one basket would be relevant. You would not face this problem if you distributed your deposits among a number of banks, would you?

I had presented a cheque for Rs. 3,500/- to my bank which was returned stating "amount in figures and words, differs". The amount in words was three thousand five hundred five only. Is this as per banking law?

-- S P Joshi

If there is a difference between the amount in figures and words, the banker can legally pay the amount in words as per the Negotiable Instruments Act, Section 18. Figuratively speaking, it is the words that count. Even the Indian Bank's Association (IBA) has ruled that cheques should not be returned for the above reason. In practice however, such cheques are often returned.

I have been given a cheque where only my name has been written along with the amount in figures. The date and the amount in words have not been filled in. The cheque has been signed. My handwriting differs significantly from that of the person who has partly filled the cheque. Can I complete the cheque, without fear of having it returned by the banker?

-- Radha Kamath

Under Section 20 of the Negotiable Instruments Act, you as the holder of an incomplete instrument can complete the necessary details. You would however have to be careful, as any mistake made which needs alteration would need to be authenticated by the issuer of the cheque.

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