With the passage of time, a lot of savings accounts become idle with a high potential of harming the account holders’ interest.
The steady penetration of banking services has led to a large section among middle and upper classes holding multiple savings accounts. While a large number of such accounts are legacy of previous employments, others were opened for availing better account features, cash management and customer service. However, with the passage of time, a lot of them become idle with a high potential of harming the account holders’ interest.
Here are the top reasons for closing your idle savings accounts:
Complying with monthly average balance requirement
Most bank accounts require you to maintain monthly average balance (MAB) ranging from Rs 500 to as high as Rs 2 lakh per month. Even zero balance salary accounts not receiving salary credit for 3 consecutive months are usually converted to regular savings accounts, thus requiring you to maintain monthly average balance thereafter.
Thus, you need to comply with the MAB requirement of your idle savings account. Else, you may have to shelve out MAB non-maintenance charges of up to Rs 450 per month.
Savings account related charges keep adding up
Although savings accounts do not have any annual maintenance charges, their linked-debit cards mostly come with annual fees. This fee is deducted directly from the savings account. Thus, even if you do not happen to use the debit card of your idle savings account, you will still be charged for its annual fee. With such fee ranging anywhere from Rs 100 to more than Rs 1,000 per year, it can even exceed the interest earned by many in their idle savings account. Once the deduction of your debit card annual fee takes your balance below the required monthly average, you will start attracting the MAB non-maintenance charges.
Apart from the debit card annual fee, banks also charge value-added SMS alert fee of up to Rs 30 per quarter.
Generates lower returns than alternative investment instruments
The money kept idle in your account offers very little in terms of interest when compared to its alternatives. Most banks offer interest rate of 3.5-4% in their savings account while a handful of them offer interest rate of up to 6.5% p.a. depending on the balance maintained. On the other hand, parking money in fixed deposits can fetch you up to 9% p.a. whereas investing in mutual funds can get you anywhere from 5% to 15% p.a. depending on the mutual fund category. While choosing the appropriate mutual fund category, ensure to factor in your risk-appetite, return expectation and time horizon of your financial goals.
Conversion to inactive or dormant status
Bank accounts that do not witness any customer-initiated transaction for 12 consecutive months get classified as an inactive account. If such accounts do not witness any transaction for additional 12 months, they get further reclassified into dormant/inoperative account. While the banks do not restrict transactions in inactive accounts, account holders are not allowed to conduct net banking, ATM transactions, phone-banking and third-party cash transactions in the dormant accounts till their reactivation. Banks may also deny request for cheque book, debit cards, address change, etc. in case of dormant accounts.
While reactivating an inactive account would simply require transaction initiated by the account holder or third party, reactivating a dormant account would require the account holder to submit a written request for reactivation in his home branch along with fresh KYC documentation. The very fact that the savings account was not used for 24 consecutive months means that the account holds very little utility for the account holder and hence, can be done away with.
Summing it up, having multiple savings accounts has its own advantages in the form of higher flexibility, better cash management, more discounts, cash backs, vouchers, etc and even lower fee and charges through optimum utilisation of various transaction-related limits. However, accounts in disuse or those with poor features should always be closed as continuing with them might either lead to the opportunity loss of generating higher returns from alternative investment instruments or lose money by incurring MAB non-maintenance charges and paying annual charges for used debit cards.
(By Sahil Arora, Head of Payment Products, Paisabazaar.com)