What is a bank deposit and how is it regulated?
A bank deposit refers to money placed in a bank, savings, or one of the investment instruments that allows saving, keeping funds in a bank, and earning income. Under a bank deposit agreement, one party (the bank or another credit institution) undertakes to accept a sum of money (the deposit) from the other party (the depositor) or, after receiving the transferred funds, to return the deposit and pay interest under the terms and conditions specified in the agreement. Only banks and other credit institutions holding a license issued in accordance with the law are authorized to accept deposits.
If a deposit is accepted by a person or entity not entitled to do so, or if it was accepted in violation of the banking regulations in Lithuania, the depositor has the right to demand the immediate return of all deposited amounts, the statutory interest, and compensation for damages to the extent not covered by the interest.
A bank deposit agreement must be in written form. If the written form is not observed, the bank deposit agreement is invalid. A depositor’s savings book, deposit certificate, or any other document issued by the bank or another credit institution, in compliance with the applicable banking regulations, is considered a valid written form of the agreement.
Bank deposits can take several forms:
- Term deposit – keeping money in the bank for a specified period (e.g., 1 month, 3 months, 12 months). This is a way to invest free funds for a chosen period while knowing the interest rate in advance. At the end of the term, the accrued interest and the deposited amount are paid out.
- Savings deposit – a type of deposit designed for saving, allowing additional funds to be added to the account over time. The accrued interest is transferred to the savings deposit account each month, so that in the following month, interest is calculated on a higher amount.
- Demand deposit (current deposit) – keeping money in the bank without a fixed term. The interest rate for this type of deposit is typically lower than that of a term deposit.
A bank deposit agreement may stipulate the obligation of the bank or other credit institution to pay the deposit upon the first request (demand deposit) or after a specified period (term deposit).
If the deposit is paid out to the depositor before the period specified in the contract ends or before other agreed conditions occur (except in the case of demand deposits), the interest is paid at the rate applicable to demand deposits unless otherwise specified in the agreement. If the depositor does not request the withdrawal of a term deposit after its term expires, or other conditions specified in the agreement occur, the agreement is deemed to be extended under the conditions of a demand deposit, unless otherwise specified.
Interest Payment Conditions and Deposits for the Benefit of a Third Party
The bank or another credit institution pays interest to the depositor in the amount specified in the agreement. The interest rate may vary depending on the type of deposit. It is prohibited to determine the interest rate based on the depositor’s personal, professional, or other characteristics unrelated to the amount, type, or term of the deposit. If the interest rate is not specified in the agreement, the bank or another credit institution pays interest according to the average interest rate applicable on the date and at the place where the agreement was signed.
A deposit may be made in a bank or another credit institution for the benefit of a third party. Unless otherwise provided in the agreement, the third party acquires the depositor’s rights from the moment of making the first demand to the bank or another credit institution, or from the moment they otherwise express the intention to exercise the depositor’s rights. An essential condition of a bank deposit agreement for the benefit of a third party is the indication of the name of the individual or the name of the legal entity. The person who concluded the bank deposit agreement for the benefit of a third party may exercise depositor’s rights only until the third party expresses the intention to exercise those rights.