Why It is Important to Know the Essential Conditions Before Signing a Bank Deposit or Bank Account Agreement. The Republic of Kazakhstan

Today, any adult citizen can easily open a deposit and/or account at a second-tier bank. In recent years, this process has been significantly simplified thanks to the development of mobile banking applications and internet banking. As a result, with just a few clicks and without leaving home, you can become a full-fledged client of a bank. It is worth noting that signing a bank deposit and/or bank account agreement online requires the depositor only to check a box indicating they have read it. However, in the modern world, where time is the most valuable resource, many depositors often do not even read the bank deposit and/or bank account agreement, missing many essential and genuinely important points.

At the same time, it is important not to forget that by concluding a bank deposit and/or bank account agreement, you not only join the bank’s client base but also automatically become a participant in civil law relations. The legal form of such relations is the bank deposit and/or bank account agreement. Based on the purposes of the bank deposit and bank account agreement, a specific set of rights and obligations arises between the client and the bank in the implementation of these civil law relations.

Remember that by putting your signature on a bank deposit and/or bank account agreement, you automatically agree to each of its conditions.

Until recently, the current legislation did not impose special requirements on the content and design of a bank deposit and bank account agreement. As a result, the format of the agreement did not always facilitate the client’s easy comprehension of all the bank’s conditions. In other words, the most important conditions were “scattered” throughout the text of the agreement. Another difficulty lay in the lack of understanding among individual depositors about the differences in the types of bank deposits and their conditions, which are largely the factors determining a depositor’s choice.

Taking the above into account, with the aim of protecting the rights and interests of depositors, the Fund last year initiated a proposal to legislate unified requirements for banks to disclose key information on bank deposit and bank account agreements in a tabular, easy-to-understand format [1]. This norm is aimed at strengthening the client’s focus on the key conditions of a bank deposit and/or bank account and achieving a conscious approach when choosing a deposit.

Thus, starting from the second half of 2024, the key conditions of a bank account and bank deposit agreement will be concentrated at the beginning of the agreement in a tabular form and will require written confirmation that the client has read them before concluding the agreement, regardless of the form of conclusion (on paper/in electronic format).

What are the key conditions that second-tier banks must now disclose for bank deposit and bank account agreements?

1. Type of deposit. The conditions for early withdrawal, the interest rate, and the amount of guarantee compensation directly depend on the type of deposit. According to the provisions of civil legislation, bank deposits are divided into four main types (on-demand deposit, term deposit, savings deposit, and conditional deposit). However, one should not confuse the type of deposit with its name in the bank’s product line. For example, the names of deposits often include words like “term” or “savings,” but deposits with such names do not always correspond to the classification under the Civil Code of the Republic of Kazakhstan. As a result, the names of banking products often do not reveal their features depending on the type of deposit and can mislead depositors. Thus, the choice of a particular deposit should be based primarily on the goals you are pursuing: to save and multiply money in the long term or to have access to it at any time.
2. Maximum amount of guarantee compensation for the deposit (also for a bank account agreement). The amount of guarantee compensation depends on the type and currency of the deposit. For deposits in foreign currency, the compensation amount is 5 million tenge; for deposits in tenge (excluding savings deposits in tenge) – 10 million tenge; for savings deposits in tenge – 20 million tenge.
3. Interest rate, conditions for interest payment on the deposit. The future amount of savings depends on the size of the interest rate on the deposit. It is important to remember that the rate depends on the type and term of the deposit, the availability of a capitalization option, etc. Thus, on deposits with capitalization, savings grow faster because the accrual of interest in subsequent periods already occurs on a larger amount, taking into account the capitalized interest. The final return of a deposit with capitalization is expressed in the annual effective interest rate, which can be easily compared across different deposit products.
4. Interest rate, conditions for interest payment on the deposit. The future amount of savings depends on the size of the interest rate on the deposit. It is important to remember that the rate depends on the type and term of the deposit, the availability of a capitalization option, etc. Thus, on deposits with capitalization, savings grow faster because the accrual of interest in subsequent periods already occurs on a larger amount, taking into account the capitalized interest. The final return of a deposit with capitalization is expressed in the annual effective interest rate, which can be easily compared across different deposit products.
   The conditions for interest payment may also differ for various deposit products. In practice, interest can be paid at the end of the deposit term with the payment of the principal amount, on an advance basis, or on a monthly/quarterly basis to the client’s account or card, separate from the principal amount of the deposit.
5. Possibility of early withdrawal of the deposit. The conditions for early withdrawal also depend on the type of deposit. Such types as non-term and on-demand deposits allow for early withdrawal without significant losses or with no restrictions at all. Others, such as term and savings deposits, have quite serious restrictions on withdrawing funds before the agreement expires. For example, partial withdrawal is not allowed at all for a savings deposit; only a full withdrawal with early closure of the deposit is possible. The conditions for early closure of such a deposit are quite strict: you must inform the bank 30 days in advance of your intention to close the deposit, and you lose almost all the accumulated interest. The conditions for early withdrawal are usually specified in a separate clause. You must remember that you may incur losses in case of early withdrawal from the bank, as the bank may issue the deposit amount without the interest accrued for the last period or with a deduction of part of the interest.
6. Term of the agreement. Term and savings deposits are made for a specific period. The depositor must remember when their agreement expires, as the bank is not obliged to inform the depositor about the end of the bank agreement term. The bank may transfer your savings to a current account or an on-demand deposit if you do not collect your money from the deposit after its term expires. Consequently, interest will no longer be accrued on the initial terms but on the terms for a current account or on-demand deposit.
7. Conditions for deposit prolongation. Often, banks provide for automatic prolongation of the deposit – this is an extension of the agreement for the same term that was initially set in the bank deposit agreement. However, when the deposit is prolonged, the interest rate may be changed to the rate that is effective in the bank at the time of prolongation. Most often, banks prolong deposits twice, and then, if the deposit is not claimed, they transfer it to an on-demand deposit. Therefore, it is worth familiarizing yourself with the prolongation conditions provided for your deposit in advance.

In addition to the above conditions, banks must also disclose the following information for a deposit/account: the name of the banking product, the currency of the deposit/account, the minimum deposit amount/non-reducible balance, the possibility of replenishing the deposit, the commission for servicing the bank account, and other key conditions at the bank’s discretion.

Given that the above requirements for information disclosure in bank deposit and bank account agreements will come into force on August 7, 2024, we recommend that depositors study all the conditions of the concluded agreement as carefully as possible.

You should remember that the introduction of a tabular form for the key conditions of a bank deposit and bank account does not cancel the client’s right to receive additional information from the Bank concerning the conditions of the bank deposit or bank account.

We remind you that you can already find out certain key conditions of a banking product (type, currency, conditions for early withdrawal of funds, and the maximum guarantee amount). This information is displayed by banks in a separate document signed by the client when concluding a bank account/deposit agreement (online – via a mobile application/bank website, in writing – at its branches). More details can be found here.

[1] The corresponding requirements are enshrined in the Resolution of the Board of the National Bank of the Republic of Kazakhstan dated July 28, 2017, No. 136 “On Approval of the Rules for Providing Banking Services and the Consideration by Banks, Organizations Carrying Out Certain Types of Banking Operations, of Client Appeals Arising in the Process of Providing Banking Services.”

[2] A non-term deposit is a term deposit according to the Civil Code of the Republic of Kazakhstan, for which there are no strict restrictions on early withdrawal, or they are absent altogether.