How to handle inactive bank accounts

Many of us have multiple savings or current accounts, of which some remain unused for multiple reasons such as job switch and misplaced documents. There are many individuals who don’t close bank accounts that they no longer need. Here is what happens if you don’t close your savings or current accounts and why you need to keep a track. Basically, there are two options if you have an irregular savings account. One is inactive and the other one is dormant account.

Inactive account

If you have a current or a savings bank account and have not done any transactions through it for more than 12 months, then it will be classified as an inactive account.

Dormant account

If your current or savings account is inactive for a period of 24 moths and above then that account turns into a dormant account. As per Reserve Bank of India (RBI) guidelines, an account becomes dormant if a customer does not initiate transactions such as withdrawal of cash at a branch or automated teller machine (ATM), payment by cheque, transfer of funds through Internet banking, phone banking or ATMs within that said period.

On the other hand, system generated transactions, such as interest credit or cash back are not considered valid.

However, if you get dividend on shares or the proceeds of your fixed deposit (FD) in your savings account, then it will be considered as an active account.

Points to remember

An inactive or dormant account can be regularised according to the RBI rule. The corpus in the account remains same except any penalty charges.

Generally, banks take this step to ascertain security and to protect customers’ money from fraudulent transactions.

When an account stays unused for a very long time, anyone especially 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 put those accounts into a single cluster and that is called inactive account or dormant account (inactive for more than 24 months).

One more thing to keep in mind is that while submitting income tax return you have to furnish all details of your bank accounts including inactive and/or dormant ones. Otherwise, you may face a penalty.

Activating an inactive account

One can activate an inactive bank account by doing basic banking activities such as cash withdrawal or deposit, funds transfer or bill payment.

Some banks also give you the option to request for activation of your account through Internet banking. You can even call the customer care or contact the bank branch and activate the account with a transaction.

No charges will be levied for reactivation of the account, according to RBI guidelines.

Even after your account turns inactive or dormant, interest, if any, will be credited to your savings account regularly.

Rs 24,400 crore lying idle

According to RBI data, Rs 24,356 crore is lying idle in different bank accounts until December 31, 2020, of which around 50% are inactive or dormant accounts.

According to rules, investors’ money goes to investor education fund if the money lying idle or unclaimed for more than 10 years after an account turns inactive.

Approximately Rs 5,000 crore is lying idle in dormant savings accounts and around Rs 6,000 crore in inactive accounts till March 31, 2019.

Besides Rs 4,820 crore is idling in matured fixed deposits which are unclaimed till date, according to RBI data.