Why You Should Use a Deposit Account Agreement in Addition to a Certificate of Deposit

As we say in the section dealing with deposit account agreements, it’s a good idea for you to establish a contractual relationship with your depositor so that you can enforce the rules of operation for your accounts. A depositor typically does not sign a CD when you issue it. The depositor usually doesn’t sign the CD until he or she cashes it. Consequently, it may be more difficult for you to argue in court that you have a contractual agreement with the depositor that ought to be enforced when you have no document signed by the depositor stating the terms of the agreement. Using a deposit account agreement will solve that problem.

Deposit account agreements also frequently deal with important issues which traditionally are not dealt with on CDs. The right of setoff, for instance, is rarely described on a CD form, yet institutions rely on that right as much with time deposits as with other accounts. A deposit account agreement is a vehicle for obtaining the depositor’s agreement on important issues, such as your right of setoff, which are not mentioned on the CD form.

A deposit account agreement is especially important in states that require that before a joint account with survivorship will be considered to have the survivorship characteristic, the joint depositors must sign a document indicating their intent to create a survivorship account. In other words, without the signed statement indicating their intent, the law assumes that when one of the account owners dies, the balance in the account is to be partitioned and whatever amount is found to have been owned by the account owner who died will go the estate of that account owner rather than to the surviving account owners. This result can cause real problems for a financial institution that allows the surviving account owners to withdraw the balance, and that is later sued by the estate of the owner who died under the claim that the account balance should have been partitioned. If an institution in such a state opens a time deposit as a joint account with survivorship using just a CD, none of the owners will have signed any documents indicating their intent to have a survivorship account and the institution is asking for trouble. A conflict between the estate and the surviving owners is bound to occur and the institution is likely to find itself in the middle and, perhaps, liable itself if it allows someone to cash the CD. So use a deposit account agreement to evidence all the owners’ intentions as to the ownership character of the deposit.

Again, keep in mind that the terms of an account agreement by themselves probably do not satisfy the Truth-in-Savings Act (TISA) and Regulation DD (12 CFR 230.1 et seq.), which require disclosures for consumer accounts. An account agreement, like a CD, is more in the nature of a contract than a disclosure. We have two other chapters in this manual that cover account-opening TISA disclosures and ongoing TISA responsibilities.