What To Do With Unused Bank Accounts

There are many banks which offer different features to their customers. We tend to open accounts with many of them to gain some of these features like customer service and cash management. Sometimes due to a switch in the job, employees need to open a new account each time with a change in the job. Once opened the minimum balance criteria will apply in a three to six months’ time though initially it was activated with a zero balance.

It so happens that we forget about a few of the accounts when we hold many. The accounts become dormant due to lethargy or busy schedule. We come to know about their existence only when bank debits some amount by way of some charges. 

With passage of time the idle accounts create problems for the holder. It is important not to keep unused bank accounts due to the following reasons-

1. It gets converted into an inactive or dormant status: when the customer does not initiate any transaction for 12 consecutive months, the account is considered as an inactive account. A further period of 12 months of inactivity will make such accounts classified as dormant. Banks will not extend any facilities like ATM transactions, phone-banking, net banking and third-party transactions until they are reactivated. Request for cheque book, debit cards, address change etc. shall be denied by the banks in case of such accounts. And reactivation of idle accounts will require a written application along with KYC documents.
2. Lower return generation: The bank offers an interest rate to 3.5 to 4 percent on savings accounts. When multiple accounts are opened, all the accounts need to have a minimum balance and they in turn fetch very less interest income. Instead of spreading money in different savings bank account, the money could be invested in some meaningful fixed deposits which can give higher returns. Mutual funds too could be a good option keeping in mind the financial goals of the investor, balanced with the risks and return factor.
3. Over burdening tax liabilities: while filing tax returns, statements from all the banks need to be compiled which makes the process cumbersome and burdensome. Dormant accounts are prone to fraud as well.
4. Maintaining monthly average balance: Ranging from Rs.500 to Rs.2 lakh could be the monthly average balance requirement by the banks. The zero balance salary accounts too get converted into regular savings accounts after a span of 3 months and require maintaining MAB. For all idle accounts, this requirement is to be fulfilled. By not keeping it, the bank collects non maintenance charges.
5. Extra charges: The bank not only charges the non-maintenance amount but also the debit card maintenance fees on a yearly basis if it is linked to your account. The debit card fees for all such accounts when added together make a considerable amount. It is advisable not link debit cards to bank accounts to avoid debit card charges while having multiple accounts because the fee is deducted from the savings account directly. Sometimes the interest earned on such idle accounts might be very less as compared to the charges which may range anywhere from Rs.100 to Rs.1000. The balance could further go down due to such charges and the average balance requirement will attract non-maintenance charges.

Consolidate or eliminate the old accounts, as they are PAN based. Once the account becomes dormant, the correspondence with the bank shall also stop. Better the unused accounts are closed keeping in mind all the above reasons.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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