PART B: BANKING OPERATIONS AND SERVICES

Chapter 6: Deposits

• Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude.

Thomas Jefferson

Learning Objectives

• By the end of this chapter, learners should be able to:• Classify the various types of deposit• Explain the usage of each deposit account• Elaborate the process of becoming a depositor• Distinguish the feature of each deposit account

Introduction

• Deposits of a bank are classified under the liability of fund to a bank.

• A deposit is the major source of fund to a bank.

• The depositors/ customers of a bank are the creditor and the bank will become the debtor.

Types of Deposits

Savings Account

Current Account

Fixed Deposit Account

Negotiable Instruments of Deposits

(NIDs)

Savings Account

• Is an interest bearing deposit account. • Previously account holders are given a passbook but

nowadays commercial banks will issue statements rather than passbooks.

• Depositors can also get their statements online via the internet.

• Besides passbooks, the account holder can also use the ATM card for easier and more convenient withdrawal of funds from his/ her account.

• Besides that, the account holder may also deposit money via cash deposit machine.

Savings Account

• Banks also offer trustee account and accounts for minor.

• Interest on a savings account is calculated on the account’s outstanding balance at the end of each day.

• However, interest is credited to the account every six months; i.e. on June 30th and December 31st each year.

Interest = Principal x Time x Rate

Savings Account

• Also offered under Islamic Syariah principle under Al-Wadiah Yad Dhamanah princilple; where the bank accepts deposits from customers looking for safe custody of their funds, at the same time, allowing the customers to withdraw their money at any amounts any time.

• Can be opened by individuals, societies, associations, and clubs whether by Muslims or non-Muslims.

Types of Savings Accounts

Individual Savings Account

Joint Savings Account

Savings Account for associations, societies

and clubs

Opening an Individual Account

• An individual needs to have an identification card and to come in person.

• He/ She has to fill a form and sign specimen signature cards.

• He/ She is also required to sign in the passbook and the signature will be covered by a spectroline sticker.

• The signature later will be used to verify withdrawals using passbook by viewing the signature using ultra-violet light.

Opening a Joint Account

• The applicants (two or more) should fill up a Joint Mandate Form and all applicants have to provide identification cards (or passport).

Opening a Society/ Club/ Associations Account

• Required documents are:– A certified copy of license or certificate issued by

the Registrar of Societies;– A certified copy of an extract of resolution passed

by the committee; and– Identification Cards of office bearers.

Current Account

• The difference between current account and savings account, for current account, cheques can be used for depositing and drawing money.

• A cheque can be transferred to another party without prior notice to the bank and is payable on demand.

• Another characteristic, interest is not paid for current accounts.

• Only commercial banks can offer current accounts.

Current Account

• A current account holder can have an overdraft facility provided that he/ she has prior agreement with the bank.

• Current accounts can be individual, joint, sole proprietor, company and trustee account.

• To open an account, a customer is required to have an identity card (or passport) or Memorandum and Articles of Association for a company.

• To open a new current account, normally a bank would require an introducer and a minimum initial deposit.

Fixed Deposits/ Time Deposits

• An investment/ deposit account where fund placed with a bank for a period of time to earn interest as quoted by the bank.

• Has better returns than a savings account. • Fixed deposit period can be 1, 2, 3 … up until 60

months. • Interest is fixed at the time the deposit is taken.

However, interest rate for more than 12 months can be negotiated between the customer and the bank.

Fixed Deposits/ Time Deposits

• Calculation of interest;

• Islamic FD is also available under al-Mudharabah concept.

• No interest is paid, but is based on profit sharing ratio.

• The profit ratio is 70:30, of which 70% is for the investor and the remaining 30% is for the bank.

Interest amount = Principal x Rate x Time

Opening an FD Account

• Simple document such as an identity card or any other identification such as passport is required when opening an account.

• Minimum deposit required:– One month – RM5,000– 2 – 60 months – RM1,000

• Can be opened by:– Individual aged 18 years

and above including non-residents of Malaysia

– Joint individuals– Societies– Association and clubs– Companies

Deposit Certificates

• Will be issued to depositors upon opening the account.

• If the depositor wants to renew/ terminate the FD account, the depositor can notify the bank before the existing FD matures.

• If he/ she does not notify the bank, the bank will automatically renew the FD.

Negotiable Instruments of Deposits (NIDs)

• Introduced in Malaysia in 1979. • Designed as a new instrument for commercial

banks to mobilize domestic savings from the public.

• A Ringgit NID is a bearer instrument issued by a commercial bank or financial institution in Malaysia certifying that a certain sum of money in Ringgit has been placed on deposit for a specific period at an agreed rate of interest.

Characteristics of NIDs

• A short-term NIDs is for a period of not earlier than 90 days and not later than 364 days from date of issue. A long-term NIDs is for a period of not earlier than 12 months and later than 60 months from the date of issue.

• Deposit is payable to whoever is the holder at maturity date.

• Has nominal value denominated in multiples of RM50,000 (minimum) up to RM10 million per certificate. No maximum amount of placement, subjected to bank’s amount.

• Tenor is in a multiple of three months with minimum tenor of three months and maximum tenor of five years.

Characteristics of NIDs

• Can be sold before maturity date and will be determined at a prevailing market rate.

• The issuer shall not purchase its own NIDs.

• Interest given is based on market rate.

• Calculation of interest accrued is based on number of days or on a 365 days basis.

• Interest payment for tenor one year or less, payment on maturity date. If tenor more than a year, interest payment will be done on each anniversary date of issue.

Advantages of NIDs

• Is a form of fixed deposits but is transferable instrument which does not bear the name of the beneficial owner. Its transferability allows a Ringgit NID can be turned into cash at any time by sale in secondary market.

• Is liquid and has ready marketability; makes an attractive short-term investment for individuals, businesses, trust funds and other organizations with temporary inevitable cash balance.

Types of NIDs

Short-term NCDs with maturity

between 90 – 364 days.

Long-term NCDs with maturity

between 1 - 5 years.

Zero-Coupon NCDs with maturity of 3

months and without interest and sold at

discount.

Floating rate NCDs with maturity of 1 year and interest is not fixed. Interest is

dependent on KLIBOR.

ANY QUESTIONSEnd of Chapter 6