All You Need To Know About Dormant Savings Accounts

Note: The information on this page may not be updated. Kindly refer to the bank website to check the latest information.

Holding multiple bank accounts and keeping tabs on all of them is no easy task.  Not only can it create confusion and lead to mismanagement, but accounts that do not feature regular banking activity are automatically deactivated by banks. Incorrect management such as non-maintenance of minimum average/ quarterly balance in your banking accounts can also attract penalties. Explained below are situations when banks render accounts as inactive or dormant, and how customers can manage such accounts through reactivation and closure as required.

How Inactive Accounts Become Dormant

If a savings or current account has not had any transactions/activity for over one year, the account is rendered inactive by the bank. Once this inactivity exceeds two years, banks declare such an account as dormant or inoperative. Additionally, banks flag accounts that have been inoperative for the past 6 months as moving towards being inactive so they may issue a KYC form to your registered address as soon as such an account is detected.

As per RBI guidelines, account transactions include debit or credit transactions such as:

• Cash withdrawal and deposit at bank branches or ATMs
• Inward and outward bill payments
• Cheque transactions – payments, withdrawals, deposits
• Funds transfer through phone banking, internet banking or ATMs
• Internet banking transactions
• Dividend credits paid into the savings account
• Fixed Deposit (FD) interest credits made into savings accounts

Note: System-generated transactions such as interest credit and service charges deduction are not included in the above list of transactions.

Using Dividends and FD Interest Credits to Keep Your Account Active

It is interesting to note that savings accounts, even after they become inactive or dormant, are still treated as operative as long as dividend or FD interest keeps getting credited to the account at specific intervals.  The savings account is treated as inoperative only two years after the date of the last credit entry of the dividend or FD interest, and provided no other customer-initiated transaction has taken place in the interim.

There are instances where a customer provides a mandate to the bank to credit FD interest to his/her savings account, and apart from that, there are no other operations in the account. Since this specific mandate is given directly by the customer, it is treated as a customer-induced transaction.

Logic behind banks making a bank account inactive or dormant

Banks take this step to ascertain security and to protect customers’ money from fraudulent transactions. This applies to external customers as well as internal employees.

When an account stays unused for a very long time, bank employees can easily get a sample of the account holder’s past signatures. This makes it easy for them to access the deposited money, using withdrawal slips. To safeguard customers’ accounts from frauds like these, banks group such accounts into a single cluster and maintain details of such inactive accounts in a separate ledger.

Also, banks usually intimate customers two to three months before making their account inactive. However, this information is usually sent in the form of a registered letter to the address mentioned in the documents submitted with the bank account.

Restrictions

Once an account is rendered inactive, the account holder cannot do the following:

• Request a cheque book
• Request a debit card
• Access Internet banking
• Get a user ID and password

Once the account becomes dormant, apart from the above restrictions, the account holder is also not permitted to change other account information such as:

• Residential/office address
• Email address
• Contact number, additionally,
• No transactions allowed through the bank branch, ATMs, phone banking and Internet
• Renew the ATM/debit card
• Modification of signature
• Add or delete a joint holder(s) on the account

Penalty on Account Dormancy/Deactivation

Inoperative bank accounts attract some penalty, which varies as per the concerned bank’s policy. However, this penalty applies to the account only during that specific period when the account has been non-operational. The penalty is an annual charge and is usually a fixed amount that is debited directly from the account periodically.

However, any receivable interest continues being credited to the account regularly, even after it has been declared inactive or dormant.

Note: The RBI in a recent directive has directed banks not to levy penal charges for not maintaining minimum balances in inoperative accounts. Additionally, banks also cannot levy charges for activating a dormant account.

Reactivating an inactive or dormant account

Some banks provide customers the additional option to request account activation through Internet banking by performing a token transaction online. Apart from this, customers may call the available customer care number or contact the bank branch directly.

To reactivate an inactive account, a duly filled application form must be submitted to the bank in which the customer needs fill in the reason for account inactivity or absence. The account holder must be physically present at the bank and submit the valid address and identify proofs – he/she must take all these documents to the branch and also complete all necessary Know Your Customer (KYC) formalities similar to opening a new account. Banks are stringent and methodical about verifying customer credentials before actually going ahead and reactivating accounts especially if they have been inactive for a long time.

In case of a dormant account, the account holder has to submit a written request and provide accepted identity proof. The account holder’s signature may also be verified to activate the dormant account. Subsequent to completion of such formalities, the account usually gets activated within 24 hours.

Preventing an account from becoming inactive/dormant

The old proverb – prevention is better than cure should be your guide in this regard. To avoid the hassles of dealing with an inactive or dormant account and bearing applicable penalties, it is best to carry out transactions once in a while, ideally once every 6 months or at the very least once in a year, for all the savings or current accounts that you currently have. Such transactions include regularly conducting basic banking transactions like withdrawal or deposit of cash, funds transfer through any banking channel, cheque and bill payments, etc.

If you have moved to a different city or are out of the country, you can log into your account through net banking and transfer small amounts between accounts just to keep the account active. However, if you feel that the account is not useful to you in any way, it would be best to get it closed. However, you should note that many banks charge a fee if you are closing your current or savings account within 1 year of opening it. On the other hand, banks are legally not allowed to charge a fee for

Tax declarations

As per Indian income tax laws, while filing income tax returns, one has to provide details of all his/her savings and current accounts held in India, including inactive and dormant ones. However, he/she need not declare those accounts that have been non-operational for over three years.