Don’t let your bank accounts idle away-Hindu Business Line 02.06.2014
Multiple bank accounts can be a drain on your finances. Close ones you don’t use
Ended up having multiple bank accounts as you hopped jobs or moved cities? Well, you may be among those who have ‘inoperative’ accounts. Inoperative accounts were in the news last month, thanks to the RBI directive to banks to do away with the charges for non-maintenance of minimum balances in such accounts. While that may tempt you to postpone closing your inoperative account, it is still a good idea to do away with accounts you don’t use.
An inoperative account, also known as a dormant account, is one in which there have been no transactions for over two years. What if the bank has credited interest or debited some charges off and on? Sorry, these are not ‘transactions’. Only transactions induced by you as a customer or by a third party count as such. So if you have directed the bank to credit your fixed deposit interest to your savings account, you have induced a transaction in your savings account and prevented it from going dormant. Likewise, if you have two bank accounts, a regular automated transfer from one to the other from time-to-time keeps both accounts active and kicking.
All those simple bank dealings — ATM withdrawals, a cheque issue or deposit, an electronic transfer or receipt — qualify as transactions which keep accounts active. It makes sense to keep accounts active; the corollary is that it’s best to close bank accounts you do not use or plan to use. Here’s why.
While banks may no longer charge your dormant account for not having the prescribed minimum balance, they could still charge for ‘maintaining’ a dormant account.
For instance, Standard Chartered Bank charges dormant accounts ₹1,000 a year, while RBS charges ₹300 per quarter. Domestic banks such as Lakshmi Vilas Bank and Tamilnad Mercantile Bank also charge for maintaining dormant accounts, though the amount is lower. The point is, there is no bar on banks from penalising you for keeping your account idle, as long as they disclose the charges. This could slowly and steadily eat into your account balance and gradually even make it nil. The bank will then close your account.
Besides this, there are many operational restrictions on dormant accounts.
For instance, a dormant account holder will not be able to transact through his ATM, or via internet and phone banking. New cheque books are not issued to dormant accounts. Some banks even have restrictions on customers issuing cheques from a dormant account. An account which has been dormant for a long time could also escape your memory, especially if you have changed addresses. This could deprive you and your legal heirs of the money lying there.
You may still have accounts which you don’t operate, but are yet to fall into the ‘inoperative’ category.
For such accounts, remember that there is no bar on banks from levying minimum balance charges. It takes two years of ‘no customer induced transactions’ for an operative account to become an inoperative one. In this period, if the minimum balance in the account is less than that prescribed by the bank, it can charge you.
Charges for non-maintenance of minimum balances vary across banks and can be as high as ₹500 a month plus service tax. That’s ₹12,000 plus taxes over two years, a tidy sum.
Even if you have the prescribed minimum balance in your bank account, it makes financial sense to close it if you don’t plan to use it.
Savings bank accounts, even dormant ones, get regular interest credits. But the rate on interest on savings bank accounts is quite low, generally between 4-5 per cent annually.
Closing the account and shifting the balance to fixed deposits will earn you much better returns, in the range of 9-10 per cent currently.
That said, if you want to activate a dormant account, you can do so by submitting an application along with your photos and identity and address proofs. Banks have to reactivate dormant accounts free of charge.
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