Banking Habits

Leaving savings bank accounts unused can prove costly in many ways

When you move to a new job, you often move your transactions to a new bank account. If you change jobs, the trail of unused accounts you leave, possibly across locations, will grow faster than the money in them. Tulika Tandon, 26, a Mumbai-based product manager with a kidswear firm, says: “When I switched jobs, I got a new salary account. I haven’t used the old account for over 15 months. Honestly, who has the time to close an account?” Degrees of unuse. If there has been no customer-induced transaction on a bank account for, typically, a year, banks, such as State Bank of India (SBI) and HDFC Bank, consider the account ‘inactive’. Beyond two years, it becomes ‘dormant’. The periods can vary from bank to bank.  If an account isn’t used for more than 10 years, it becomes an unclaimed deposit, which, eventually gets transferred into book profits for the bank. In 2003, SBI alone recorded unclaimed deposits of Rs 145 crore. In 2006, scheduled commercial banks had total unclaimed deposits of over Rs 1,000 crore in 10.3 million inactive accounts. Plethora of problems. K. Unnikrishnan, senior vice-president, Indian Banks’ Association (IBA), says, “Keeping an account unused is not wise considering the various risks attached to inactive accounts.” One, money in an unused account would earn 3.5 per cent returns against 8 per cent even in a Public Provident Fund account. Some banks charge Rs 250-750 a year to maintain inactive accounts, often adjusting it from accrued interest. Two, if you don’t have the minimum balance, you have to pay a penalty. Outlook Money reader R. Yogesh wrote in: “My brother and I had not used our joint account in ICICI Bank for a long time. A few months back, the bank informed us that the account had become dormant. It has debited Rs 1,734 as we didn’t maintain the minimum balance.” IBA rules say that a bank has to inform the customer before freezing his account. Three, it increases clutter in your money life. You have to find out the interest earned in each of them while calculating your income since interest is taxable at your marginal rate. More accounts means the job becomes more tedious. Four, risk of embezzlement. Says a deputy manager at a leading bank: “There have been cases of bank employees forging signatures to withdraw money, usually small amounts, Rs 100-250, which the customers hardly notice.”  Finally, there is the threat of your financial identity, especially credit history, being stolen. Chances of detection are lower in unused accounts.  What to do. Says Unnikrishnan, “You need 2-3 accounts at most. All accounts one does not intend to use should be closed.” All you need to do is go with an application and account details, and the account can be closed on the spot. Reviving an inactive account isn’t tough either. If it has been inactive for less than a year, a message to the bank from your Internet banking identity or over the phone, instructing it to pass Re 1 debit and credit entries on your account will do the job. You can also encash a cheque. For a ‘dormant’ account, take a photo identity to the bank and apply for reactivation. It normally takes 24 hours and about Rs 100. Use it or shut it, but don’t ignore it.