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.