On deposits which are subject to notice, a higher rate is usually allowed, the rate being increased (e.g. in colonial banks) up to a certain point, according to the length of notice which must be given.
No interest is, as a rule, allowed upon money on deposit receipt unless it has remained in the banker's hands for a certain specified period. The period varies accord ing to the bank, in some cases it is fourteen days, in others one month or even two months.
Where notice of repayment is given (i.e. in cases where notice is required) and the money is not applied for at the date it is due to be paid, interest usually ceases until the depositor renews the receipt.
Unless a promissory note payable on demand expressly states that interest is to be paid, interest is not recoverable. Where a bill is dishonoured, interest on the amount of the bill may be recovered from the time of presentment for payment if the bill is payable on demand and from the maturity of the bill in any other case. (See Section 57 of the Bills of Exchange Act, 1882, under DISHONOUR OF BILL OF EXCHANGE.) There is no general law to justify interest being charged upon a loan, but by custom a banker is entitled to charge interest, and, by making half-yearly rests and adding the accrued interest to the balance, to charge compound interest. In addition to the usual custom, there may be a special agree ment as to interest between the banker and a customer. A banker's right to charge compound interest may also be justified by a customer's acquiescence in the method of charging his account in previous half-years.
Unless by agreement, a banker is under no obligation to allow interest upon money lent to him.
Upon the death of a customer it has been held that simple interest only may be charged, and not compound interest, from the date of the customer's death till the date of payment.
Where a banker takes a mortgage for a fixed sum, unless there is a special agreement to charge compound interest, he can charge only simple interest, because the position is no longer that of banker and customer but that of mortgagor and mortgagee. For this reason, a loan account which is secured by a mortgage for a fixed sum must be kept distinct from the working account. The usual method in such a case is to obtain a cheque from the debtor upon the working account for the interest upon the loan account as it falls clue. In the case of a fixed mortgage the banker must deduct income tax from the amount of the interest due upon the loan before charging it to the customer's account, but if the loan is for a less period than a year the customer is not entitled to have tax deducted. A mort gagor is entitled to deduct income tax by Section 40 of the Property Tax Act, 1S53. \\'hen a banker deducts tax from the interest due by a customer upon a fixed mortgage, he takes credit, in his income tax return, for the amount of tax allowed to the custo mer ; that is, the amount of tax due to be paid to the tax authorities upon the profits of the bank is reduced by the amount which he has already paid by way of the deduction from the customer's interest. Income tax
is deducted from fixed deposits by the colonial banks in London. (See INCONIE Tax.) As to the effect of the Statute of Limi tations upon interest, see STATUTE OF LIMITAT1ONS-INTEREST.
In the case of a bank of issue which was being wound up, it was held that interest at 5 per cent. was payable upon its notes from the date when demand for payment was made from the liquidator.
When a judgment for mortgage money has been obtained, the interest (if more than 4 per cent. in the mortgage deed) is reduced to 4 per cent.
Vpon the bankruptcy of a customer, interest can be charged only up to the date of the order ; or in the case of a deed of assignment to the date of the deed.
If there is any surplus from a bankrupt's estate after all debts are paid in full it shall be applied in payment of interest from the date of the receiving order at the rate of four pounds per cent. per annum on all debts proved in the bankruptcy (Section 40, s.s. 5, of the Bankruptcy Act, 1883).
On any debt or sum certain, payable at a certain time or otherwise, whereon interest is not agreed for, and which is overdue at the time of the receiving order and provable in bankruptcy, the creditor may prove for interest at 4 per cent. per annum to the date of the order from the time the debt was payable, if payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when demand in writing has been made giving the debtor notice that interest will be claimed from the date of the demand until the time of payment. (See Rule 20, Schedule II, under PROOF OF DEBTS.) Section 23 of the Bankruptcy Act, 1890, provides : " Where a debt has been proved upon a debtor's estate under the principal Act, and such debt includes interest, or any pecuniary consideration in lieu of interest, such interest or consideration shall, for the purposes of dividend, be calculated at a rate not exceeding five per centum per annum, without prejudice to the right of a creditor to receive out of the estate any higher rate of interest to which he may be entitled after all the debts proved in the estate have been paid in full." A ready way of telling approximately the number of years in which an amount at compound interest will double itself, is to divide 70 by the rate per cent.
When, for any reason, it is necessary to refund part of the interest charged to a customer's account, it is commonly called a rebate.
In Scotland, all the banks, by agreement, make the same charges for interest and commission, so that, as far as charges are con( erned, there is no advantage to be gained by a customer dealing with one bank rather than another. No interest is allowed on credit current accounts, but on the other hand commission is not charged.