OPENING AND CLOSING OF ACCOUNTS

OPENING OF ACCOUNT
The banks open accounts for customers, and while doing that certain precautions must be taken by the
banks so that they can claim statutory protection against legal actions arising out of their operations. The
banks usually get convinced about the general reputation of prospective customers before accounts are
opened for them.
PROCEDURE FOR OPENING ACCOUNTS
A. LIMITED LIABILITY COMPANIES
For an account to be opened for a private limited liability company, the following procedure will be
adopted:
The bank will request the customer to furnish it with the following:
(1) Application made in bank/s prescribed form.
(2) The resolution of the board of directors authorizing the opening of the account.
(3) The extract of the resolution indicating the signatories to the account.
(4) A copy of the Memorandum of Association of the Company
(5) A copy of the Articles of Association of the Company.
(6) Certificate of Incorporation.

(7) Certificate to commence business for a public limited liability Company.

The bank has to study the documents very careful to ascertain who are the shareholders and the borrowing
power of the directors.
B. UNINCORPORATED BODIES
Partnership businesses may open, accounts with banks. The banks should take the following steps while
opening accounts for them.
1. A search must be conducted at the Ministry of Trade, Business Name Registry to ascertain who the
partners are.
2. Application to open account should he jointly signed by the partners.
3. The nature of the partnership business should be ascertained.
4. The name with which the account should be opened. The account should be opened in the firm's name.
5. Account mandate signal by all partners is taken to cover drawing of cheques, borrowing etc.
6. The bank should incorporate Joint and Several Liability Clause in operating the account.
7. The deed of partnership.
C. CLUBS, TRADE UNIONS AND VOLUNTARY ORGANISATIONS
The requirements for opening these accounts are stated here under:
(1) Examine the rules and regulations of the organisation.
(2) Determine the powers of the executive members.
(3) Obtain the provisions regarding to signing of cheques.

(4) A resolution to open the account.

(5) A copy of the extract of the minute’s book, certified by the President or Chairman and Secretary.
(6) Specimen signatures of the authorised signatories.
(7) Passport photographs of the authorised signatories.

D. INDIVIDUAL ACCOUNTS
These are accounts opened and operated by individuals who may be literate or illiterate provided they are
up to the age of 18 years. The following procedure is adopted while opening an account far an individual.
1. Name of the applicant.

2. Address of the applicant.

3. Occupation.

4. Passport Photographs.

5. Specimen signature.

6. Brief Statement on the applicant's previous or existing bankers.

7. Letters of introduction by referees who may be customers of the bank, confirming that they have
known the applicant for a certain number of years and that they consider him honest, trustworthy and
recommend that the account should he opened for him (See fig. 4.1)

SPECIMEN OF BANK REFERENCE FORM

I/We have known Mr./Mrs./Miss......... For . . . years and consider her/
Him/them honest, trustworthy and respectable. In my/our opinion she/he is/ they are suitable person(s)
that may properly open and conduct a current account.
My/Our bankers are_____________________________________
Signature (s):___________________________________
Full Name(s) and Address:____________________________________
FIG. 4.1
E. MINOR ACCOUNTS
A Minor account is an individual account opened and operated by a parent or guardian of a minor on his
behalf. A minor is one who has not attained the age of 18 years. The minor lacks contractual capacity to
operate the account and as such would require an adult to operate the account in trust until he attains the
age of 18.The account is headed in such a. way that the guardian's/parent's name is written with "the
words "IN RE" before the minor's name and date of birth". However on attaining the age of 18, the child
can regularise the operation of the account.
EXAMPLE; If Thomas Ude is the guardian of John Ude a minor the account will he titled:

Some banks may require the passport photograph of the minor to be attached to the banks specimen
signature card along side with that of the parent/guardian.
F. JOINT ACCOUNTS
Two or more persons can open an account in their names. Such an account is usually not a business
account, and is referred to as Joint Account. Husband and wife, brothers, sisters, friends, etc can have
joint accounts. The following is required for joint accounts:
(1) Names of the account holders.
(2) Their address.
(3) Their occupation.
(4) Passport Photographs.
(5) Specimen signatures.
(6) Information about previous or existing bankers,
(7) Letters from referees (See Fig. 4.1).
(8) Mandate.
The mandate spells out how the account is to be operated and howmoney will be withdrawn from the
account, it specifies:

a) "EITHER TO SIGN"
OR
b) "BOTH TO SIGN"
OR
c) "ANY TWO OF THE THREE TO SIGN"
G. LOCAL GOVERNMENT OR ITS AGENCY ACCOUNTS
In Nigeria, a Local Government Council can open a bank account, and in the process, the bank has to
demand the following:
(1) Government Gazette establishing the Local Government or its agency.
(2) Authorising letter from the Local Government signed by the Chairman and the Secretary of the Local
Government Council.
(3) A letter of application for opening the account.
(4) Mandate specifying the signatories to the account.
(5) Passport photographs of the signatories.

H. STATE GOVERNMENT OR ITS AGENCY ACCOUNTS

For an account to he opened for a State government the bank will require some documents which include:
(1) State Government Gazette establishing the Ministry or Agency,
(2) Authorisation Letter from the Accountant General of the State,
(3) A letter of application for opening the account.
(4) The names and passport photographs of the authorised signatories,
(5) A letter confirming that the bank has been elected by the government to be the banker of the ministry
or agency concerned.

I. FEDERAL GOVERNMENT OR ITS AGENCY ACCOUNTS

The Federal Government of Nigeria or its agency normally opens and operates bank accounts. Under this
circumstance, the bank will demand the following:
(1) Federal Government Gazette establishing the ministry or agency.
(2) A letter of authorisation from the Accountant General of the Federation permitting the opening and
operation of the account.
(3) A letter of application to open an account.
(4) The signatories to the account.
(5) Passport photographs of the signatories,
(6) A letter confirming the appointment of the bank by the ministry or agency,
J. EMBASSY ACCOUNTS
Embassies usually open and operate bank accounts such accounts are fed from remittances from home
country. The following are the requirements for opening an embassy account:

(1) An official letter obtained from the home country promising to feed the account with regular
remittances,
(2) A letter from the Ministry of External Affairs authorising the opening and operation of the account.
(3) The passport photographs of the signatories to the account,

K. MARRIED WOMEN ACCOUNTS

In Nigeria a married woman who is of age is capable of opening and operating a bank account in her
name. The following are required by the bank before an account is opened for a married woman:
1. Ensure that she is a person of good character,

2. The name of her employer.

3. The nature of her employment.

4. Her husband's employer.

5. Passport photographs.

6. Specimen signature.

7. Letters of reference.
STANDING ORDERS
DEFINITION
There are Standing instructions given by bank customers to their bankers to make regular periodic
payments from their accounts to the accounts of customers of the same bank or other banks. The
customers must sign the orders in accordance with the accounts mandates.

Standing Orders are regularly used in making payments relating to:

- Insurance premiums;
- Regular subscriptions;
- House rents;
- Hire purchase;
- Instalmental loan repayments; and
- School fees etc.

INFORMATION REQUIRED FOR OPENING A STANDING ORDER.

The banker would require the following information before he can open a standing order for a customer:
1. An application by customer for opening of the standing order.
2. Name of the customer giving the order.
3. Name of the beneficiary.
4. Address of the beneficiary

5. Destination of remittance.
6. Mode of payment (ie. air, sea, land, rail etc).
7. Amount to be remitted.
8. Intervals of payment.
9. Customer's signature.
10. Account number of the applicant.
11. The account number of the beneficiary.
After obtaining the necessary data the bank opens the standing order according to the mandate of the
customer and begins to effect the remittances provided that sufficient fund is available and there is no
counter-instruction stopping payment.
DUTIES OF A CUSTOMER ON A STANDING ORDER.
The customer has the following duties in a standing order arrangement:
1. To give the banker accurate information about the remittance.
2. To make sufficient fund available in his account.
3. To pay bank charges for standing order services.
4. To notify the bank promptly whenever the standing order is to be discontinued.
DUTIES OF A BANKER ON A STANDING ORDER
1. To handle the standing order with every amount of diligence and care.
2. To make remittances strictly according to customer's mandate provided the fund is available.
3. To warn the customers not to contribute to the delay and non-payment at due date because the bank
will not accept responsibilities for such delay or non-payment caused by customers.
4. To send periodic statement of account to customer.
RIGHTS OF A BANKER ON A STANDING ORDER.
The banker has the following rights:
1. To charge commission for rendering the service.
2. The bank may cancel a standing order where the customer has caused payments not to be effected on
due date for three consecutive times or more.
ADVANTAGES OF STANDING ORDERS TO THE BANKER
The banks benefit from standing order services as follows:
1. Banks earn income from standing orders in the form of commission.
2. Standing order services increase the scope of services which banks render to customers.
ADVANTAGES TO THE CUSTOMERS
1. They help the customer make payment for recurring items.
2. The customer is provided with a record of payment.
3. The transmission charges are usually cheap.
4. The onus of making payment at due dates rests with the banker.

BANKS CONSIDERATION WHILE HANDLING STANDING ORDERS

(1) Insufficiency of Funds:
Where the customer's account balance is not sufficient to allow payment to be effected on the due date,
the bank incurs no liability for failing to obey the order.
(2) Payee instructs the bank to cancel the Order:
If the payee directly instructs the bank to cancel a standing order, such order must be disregarded unless
confirmed by the customer. If the payee refuses to accept payments, the bank should continue to make
each payment which falls due, notifying each refusal of acceptance to the customer.
(3) Enquiry by payee on delay in payment:
The bank should not answer the enquiry, rather the payee should advised to contact the customer to
ascertain the reason.
CONDITIONS UNDER WHICH OBLIGATION TO PAY
STANDING ORDERS ARE NOT BINDING ON THE BANKER
Although the banker is always very much liable to pay the beneficiary of a standing order, but his liability
on the standing order, stops on the following conditions:
(1) If the customer has insufficient fund in his account.
(2)
(3) (2) If the customer's balance is not sufficient and he has no credit arrangement for the standing
order.
(4) (3) If there is countermand of payment.
(5) (4) If there is a garnishee order stopping payment out of the account.

CURRENT ACCOUNTS
DEFINITION
A Current Account is a running or active account on which cheques or order to pay are drawn without
notice and to which credits are paid. It can also be defined as an account whose balance is withdrawable
by cheque without prior notice. Thus any credit balance on such account is payable on demand.
CHARACTERISTICS OF A CURRENT ACCOUNT
The distinguishing characteristics of a current account are explained:
1. Payable on Demand;

The account holder has the right to draw cheques and any credit balance on such an account is repayable
on demand.
2. Interest:

Prior to January 1990, no interest was allowed on credit balances on current accounts. Effective from
January 1990, banks allow interest of between 2% to 5% for individual and corporate accounts
respectively.
3. Overdraft Facility;

A customer may be allowed to overdraw his account on arrangement with the bank. The overdraft facility
allows the customer to withdraw some specific amount of money over and above his credit balance,

4. Cheque Clearing:
The cheque clearing system offers the current account an effective mechanism for settling indebtedness
among firms, individuals, government and countries.
5. Commission:

The banks charge commission for services rendered to current accountholders. Most of the charges are
determined by the Central Bank of Nigeria through the BankersTariff. Current account holders are
obliged to pay the commission.
6. Withdrawal by a Third Party:

Any body including third parties properly authorized by the account holder can withdraw money from a
current account.
7. Bank Statement:

The bank furnishes the customer with statement showing transactions of the customer with the bank for a
specific period. The statements aresent to the account holder periodically.
INSTRUMENTS THAT MAY BE PAID INTO A CURRENT ACCOUNT
The current account is a very versatile one which can accommodate various types of financial instruments
to be paid into it. Some of the instrument that; may be paid into a current account are:
- Currency (Notes, and Coins).
- Money and Postal Orders.
- Cheques.

Dividend warrants.
- Interest warrants.
- Letters of Credit.
- Bankers Drafts.
- Bankers Payments.
- International financial instruments such as
Special Drawing Rights (SDR) European Currency Unit (ECU)
ADVANTAGES OF CURRENT ACCOUNT
The current account has the following advantages:
1. It permits various types of financial instruments to be paid into the account.
2. A Holder of Current account can enjoy overdraft facility.
3. The holder is entitled to statement of account on periodic basis.
4. It may be applied for servicing other accounts. A temporary idle balance in a current account may be
transferred to a savings and fixed deposit accounts.
5. The frequency of withdrawal from the account is not regulated.
6. It saves the account holder the trouble of not visiting the bank I frequently for a third party can operate
the account with the consent of the owner.
7. It increases the credit habit of the economy through the user of cheques and other financial instruments.
8. It provides convenience for business and commercial transactions. A current account holder can do his
settlements through the use of cheques and avoids the danger of carrying about huge sums of money.
9. International transfers could be done through the use of current accounts

TYPES OF CUSTOMER THAT OPERATE CURRENT ACCOUNT

Generally individuals, governments, corporations, incorporated bodies, incorporated bodies and registered
associations are free to operate current accounts. However the account is particularly suited for the
following types of account holders:
1. Business Enterprises that require high working capital turnover.
2. Government establishments that require to settle recurrent and capital expenditure.
3. Individual account holders who receive their wages through the bank.
4. Un-incorporated bodies such as partnership business require the account for settlement of business
transactions.

SAVINGS ACCOUNT
A Savings Account is one which earns interest on monthly basis. The interest, payable depends on the
balance in the account as at the date of computation for manually operated accounts, the account holders
are issued pass books which contain the records of transactions between the customer and the bank.
Now that many banks are computerised, bank statements are issued customers on periodic basis to reflect
their transactions for the periods. Cheques are not issued to savings account holders.
CHARACTERISTICS OF SAVINGS ACCOUNT
1. In manually operated savings account, pass book is needed I operating the account.
2. In computerised accounts, the statements of account are issued I customers.
3. Payments into the account are made by a deposit slip.
4. A third party can deposit money into the account.
5. The account earns interest.
6. Withdrawals from the account exceeding three times in a month will make the customer to forfeit
interest receivable tor the month.
7. Cheques are not used for the operation of savings account.
8. The Savings account does not attract over draft facility.

There is no restriction regarding the frequency of deposits into a savings account. As often as the account
holder wishes, he can maid deposits into his account.
OPERATIONS OF A SAVINGS ACCOUNT
After an applicant has met all the requirements tor opening a savings bank account, the bank can open one
for him which the customer has to operate based on the rules and regulations guiding the operations of
savings accounts
DEPOSIT OF MONEY INTO SAVINGS ACCOUNT
An account holder or a third paid can deposit money into a savings account. For savings account deposit
to take place, personalized deposit booklets are Issued to the customer. When the deposit forms are
properly completed by the customer, the cashier receives the forms and the money from the customer.
The money is counted by the cashier to confirm that the amount recorded by the customer in the deposit
slip tallies with the actual cash deposited. The account of the customer is credited with the amount
deposited and the deposit booklet stamped by the cashier is returned to him.
WITHDRAWAL OF MONEY FROM A SAVINGS ACCOUNT
For withdrawal of funds to be effectuated in a savings account, the customer has to complete the Savings
Bank withdrawal slip indicating the amount he intends to withdraw and giving other relevant information
relating to the account. The slip must be signed by the account holder and presented to the bank
personally for cashing of money. The withdrawal slip is received from the customer and verified by a
bank staff to ensure that
the slip is completed appropriately. Also the signature of the customer is verified to ensure that it is
regular. After the bank officer is satisfied that the slip is regularly completed, and that there is sufficient
fund in the account, he signs the slip and passes on to the cashier who pays the customer. The customer's
account is debited to the tune of the withdrawal.
ADVANTAGES OF A SAVINGS ACCOUNT
Savings Bank account confers the following advantages on the accountholder:
1. It generates revenue for the customer in the form of interest.
2. A Savings account offers the account holder secured means of keeping his fund.
3. It is easily accessible to the account holder.
4. Withdrawals from the account by a third party is not allowed, thereby reducing the chances of fraud.
5. It allows a third party to deposit money into the account.

DIFFERENCES BETWEEN CURRENT AND SAVINGS ACCOUNTS

1. Withdrawals:

Incurrent accounts withdrawals are made by the use of cheques while in the savings accounts withdrawal
forms are used.
2. Interest:

Accounts with marginal balances do not earn interest in current accounts, but in savings accounts, all
credit accounts earn interest irrespective of the size of deposit.
3. Notice:

In current accounts no notice is required for withdrawal of funds, this contrasts with the practice where
notice may be required before funds can be withdrawn from savings account.
4. References:
References are taken when opening current accounts, no references are required in opening savings
accounts.
5. Frequency of Withdrawals

There are no stipulations as to the number of times withdrawals can be made in current accounts, hut in
savings accounts a maximum of three withdrawals are permitted in any single month, otherwise the
customer may Jose his interest for the month.
6. Commission on Turnover:
Commission on turnover is charged on current account, but this does not apply to savings account
FIXED DEPOSIT ACCOUNTS
MEANING
A fixed deposit account is one which provides that the amount of such deposit is payable on a certain
date, or at the expiration of a specified period of time. Banks accept fixed deposits for periods ranging
between 3 months to 36 months.
While opening the account, there is usually a written contract between the bank and the customer that
neither the whole nor any part of the deposit may be withdrawn before the maturity date.
A customer who intends to withdraw fund from the fixed deposit account before the maturity date, is
usually penalized. The penalty is in the form of paying penal rate, which will be deducted from the
amount deposited before allowing him to collect the net balance on his account.
CHARACTERISTICS OF FIXED DEPOSIT ACCOUNTS
The fixed deposit account has the following features:
1. Overdraft facilities are not allowed on fixed deposit accounts.
2. Cheques are not drawn on fixed deposit accounts.
3. Withdrawals are done at the maturity date.
4. Where a customer withdraws his deposit prior to date of maturity, he pays penalty.
5. Interest is paid on fixed deposit accounts.

6. Bank do not charge commission on fixed deposit accounts,

7. Refers are not required for opening fixed deposit accounts.
PROCEDURE FOR OPENING FIXED DEPOSIT ACCOUNTS
The fixed deposit account can be opened without much formalities. The usual procedure may be
explained as following:
1. The identity of the prospective customer is established.
2. The amount of deposit is established.
3. The terms and conditions of the contract are negotiated and agreed upon.
4. The customer is allowed to complete the account opening form.
5. The specimen signature of the customer is obtained.
6. The bank acknowledges receipt of deposit from customer by issuing confirmation advice or deposit
Certificate to the customer.
RENEWAL OF FIXED DEPOSITS
At maturity, fixed deposits may be rolled-over or renewed on new terms and conditions. In that regard,
the old confirmation slip or certificate relating to the o expired deposit is revoked and replaced with a new
one evidencing the terms mid conditions of the new deposit.
ADVANTAGES OF FIXED DEPOSIT ACCOUNTS
The fixed deposit account has the following merits:-
1. It earns interest for the depositor.
2. The fixed deposit account provides safety for the depositor's fund.
3. Fixed deposit accounts are always handy on maturity.
4. The depositor has the freedom to determine the duration of the deposit.
5. The opening procedure is very simple.
6. Banks do not charge interest on fixed deposit accounts.
7. It may be operated by individuals, corporate bodies or governments.
INTEREST ON FIXED DEPOSIT ACCOUNTS
The banks pay interest on fixed deposit accounts.
The interest payable is dependent upon the amount deposited and the interest rate of the banks.

CLOSING A BANK ACCOUNT

The nature of an account will determine the procedure which a banker will adopt in closing it.
(1) Closing Current Accounts with Debit Balance.
A current account with a debit balance can be closed by a banker under the following circumstances:
1. Where the account is regularly overdrawn.

2. Where the account holder draws an unfunded account.

3. Where the customer takes an unauthorised overdrafts.

The banker has to inform the customer about the unsatisfactory operations of his account, if the customer
does not make amends, the bank should recall the outstanding balance and give sufficient notice to the
customer to close the account. Within the period of notice, no further over-drawing should be allowed.
The bank should withdraw all un-issued cheques from the customer.

(2) Closing Current Accounts with Credit Balance

A current account with credit balance may be closed for the following reasons:
1) Unreasonableness on the part of the customer.

2) Frequent negligent operations of the account by the customer.

3) Habitual drawing on uncleared effects.

4) Accounts connected with fraudulent practices.

5) Accounts that may tarnish the image of the bank.

The bank has to give sufficient notice to the customer to close the account. At the expiration of the notice,
the bank can close the account.
(3) Closing A Loan Account
When loans are granted to hank customers, loan agreements are signed by both parties. These agreements
spell out the terms and conditions of the contracts. Apart from the general agreements, the banks usually
include default clause which makes the loan repayable on demand.
the customer defaults, the bank will request him to pay up all his debts; thereafter the account is closed.
(4) Closing A Dormant Account
When an account has remained un-operated for a very long period of time it is called a dormant account.
If the account has a small credit balance, it is the practice of bankers to intimate the customer of the
balance and suggest in a polite language that the account he closed, The customer is advised to draw a
cheque for the whole balance and return the unused cheques.

GENERAL PROCEDURE FOR CLOSING ACCOUNTS

While closing a current account, the bank should ensure that:
(1) The customer completes the form for closing account (See fig. 4.2)
(2) Unused cheques are returned.
(3) The necessary closing charges are determined.
(4) Pass all closing entries to the ledger.
(5) Determine the closing balance.
(6) Pay the customer the closing balance.
(7) The ledger is conspicuously marked "CLOSED"
(8) The ledger is recorded in the opened and closed register.