When Bank Account Turns Dormant
Legal File - When Bank Account Turns Dormant
It is not uncommon for bank customers to be charged a penalty if their bank account remains inactive for a certain period of time. When people go out of country or do not operate their account for some other reason, their account balance starts to go down as banks start to impose a penalty. Here is some information on what to do when you are faced with such a problem
If no transaction—credit or debit other than crediting of periodic interest or debiting of service charges—takes place in your savings account for more than 12 months, the account becomes inactive. If this time period exceeds 24 months, the account is declared dormant or inoperative. The exact period after which a bank is declared inactive or dormant varies from bank to bank. For instance, ICICI Bank declares an account inactive after 15 months and dormant after 18 months. Punjab National Bank and Barclays, on the other hand, declare it as dormant after just six and three months respectively.
The inconvenience
Once an account turns inactive or dormant, there are several operations you cannot perform, for instance, you cannot request that a cheque book be issued. Once an account turns dormant, the number of restrictions increases even further. You can't ask for your address to be changed, the signature be modified, a joint holder be added or declared, or an ATM/debit card be renewed.
However, even after your account turns inactive or dormant, interest is still credited to your savings account regularly. And if a fixed deposit receipt matures and you don't withdraw the proceeds, the amount left unclaimed in the saving account will attract the rate of interest applicable to this account.
Disadvantages
Keeping many bank accounts breeds confusion while calculating your income at the time of filing income tax. Interest earned is taxable at the marginal rate.
If you are not using your bank account regularly, you may not come to know that your bank has raised the minimum balance requirement and slapped penalty charges on you. You may end up having an account with debit balance. So if you don't intend to use an account, close it. Write an application with your account details and submit it to the bank. The account is closed on the spot.
How to reactivate an account
In case you have other active accounts, you could send the bank a secure message from your Personal Internet banking ID instructing it to debit Re 1 from this account to another.
To reactivate a dormant account submit a formal application to the bank stating the reason for your absence, and provide a photo identity proof. Your signature will be verified by the authorized bank personnel. The bank may even charge you a small fee for reactivating your account. For instance, Barclays Bank charges Rs 250 plus service tax. Most public sector banks and co-operative banks have waved off the reactivation charges as per RBI guidelines.
In case you have not maintained the average minimum quarterly balance during your absence, you will have to the pay a penalty. SBI charges Rs 200 per quarter for not maintaining the minimum balance of Rs 1,000. The account usually gets activated within 24 hours. To nip this problem in the bud, keep using your account before it turns inactive or dormant. Carry out a transaction once in a while in all your accounts if you want to escape bearing the penalty or having to run to the branch to reactivate the account. At least once a year, carry out a transaction: withdraw cash, transfer funds through any of the banking channels.
In some other countries like theUSA, a bank account has to remain inactive for a period of 3 to 5 years for it to be declared inactive. However, this time period varies from bank to bank and country to country.
References:
The Indian Express, dated 27-4-2009
It is not uncommon for bank customers to be charged a penalty if their bank account remains inactive for a certain period of time. When people go out of country or do not operate their account for some other reason, their account balance starts to go down as banks start to impose a penalty. Here is some information on what to do when you are faced with such a problem
If no transaction—credit or debit other than crediting of periodic interest or debiting of service charges—takes place in your savings account for more than 12 months, the account becomes inactive. If this time period exceeds 24 months, the account is declared dormant or inoperative. The exact period after which a bank is declared inactive or dormant varies from bank to bank. For instance, ICICI Bank declares an account inactive after 15 months and dormant after 18 months. Punjab National Bank and Barclays, on the other hand, declare it as dormant after just six and three months respectively.
The inconvenience
Once an account turns inactive or dormant, there are several operations you cannot perform, for instance, you cannot request that a cheque book be issued. Once an account turns dormant, the number of restrictions increases even further. You can't ask for your address to be changed, the signature be modified, a joint holder be added or declared, or an ATM/debit card be renewed.
However, even after your account turns inactive or dormant, interest is still credited to your savings account regularly. And if a fixed deposit receipt matures and you don't withdraw the proceeds, the amount left unclaimed in the saving account will attract the rate of interest applicable to this account.
Disadvantages
Keeping many bank accounts breeds confusion while calculating your income at the time of filing income tax. Interest earned is taxable at the marginal rate.
If you are not using your bank account regularly, you may not come to know that your bank has raised the minimum balance requirement and slapped penalty charges on you. You may end up having an account with debit balance. So if you don't intend to use an account, close it. Write an application with your account details and submit it to the bank. The account is closed on the spot.
How to reactivate an account
In case you have other active accounts, you could send the bank a secure message from your Personal Internet banking ID instructing it to debit Re 1 from this account to another.
To reactivate a dormant account submit a formal application to the bank stating the reason for your absence, and provide a photo identity proof. Your signature will be verified by the authorized bank personnel. The bank may even charge you a small fee for reactivating your account. For instance, Barclays Bank charges Rs 250 plus service tax. Most public sector banks and co-operative banks have waved off the reactivation charges as per RBI guidelines.
In case you have not maintained the average minimum quarterly balance during your absence, you will have to the pay a penalty. SBI charges Rs 200 per quarter for not maintaining the minimum balance of Rs 1,000. The account usually gets activated within 24 hours. To nip this problem in the bud, keep using your account before it turns inactive or dormant. Carry out a transaction once in a while in all your accounts if you want to escape bearing the penalty or having to run to the branch to reactivate the account. At least once a year, carry out a transaction: withdraw cash, transfer funds through any of the banking channels.
In some other countries like theUSA, a bank account has to remain inactive for a period of 3 to 5 years for it to be declared inactive. However, this time period varies from bank to bank and country to country.
References:
The Indian Express, dated 27-4-2009
