In order to cultivate the habit of savings, we all open a bank account in our hometowns. With time, however, after we find jobs or have a change of job, and often forget about our old accounts and those become inoperative.
If you are raising a plant, you will need to take care of it once in a while to keep it alive or it will slowly wither and die. Similarly, you need to know about the whereabouts of the bank accounts in your name.
When does a bank account become inoperative or dormant account?
An account is treated as "inoperative" or "dormant" when there has been no transaction taking place using the account for a long time. As per RBI's (Reserve Bank of India) instructions, bank accounts are categorised as inoperative to safeguard them from any fraudulent activities.
This label is provided in cycles and applies to current or savings account.
If the account is not used, that is, there has been no valid transaction of receipt or withdrawal of money for one year, the bank will contact the account holder. If they do not receive a response, the bank holder will be informed through an official medium of communication (email or post) of the change in status to "inactive", two to three months in advance.
If the inactive status carries on for 2 more years, the bank account is treated as "inoperative" or "dormant." A declaration of the same will be communicated to the account holder.
What happens to the bank account in case of the death of the account holder?
When no response is received from the bank account holder about the "inactive" status, the bank calls its nominee. The death of the holder can be informed to the bank and the nominee will receive any balance in the account on submission of necessary documents like the death certificate.
If the bank account holder's will states differently about who is supposed to receive the balance, the money will be transferred to those mentioned in the will.
What are considered as valid transactions to keep the bank account active?
- Debiting the account through ATM, net banking, cheques, mobile banking, etc.
- Crediting the account either through another bank account of your own or from a third party through cheque or direct transfer.
- Automated payments like standing instruction to pay phone bills or other utility bills is also a valid transaction.
Note that interest credited to your bank account is not a transaction.
What happens when your bank account becomes inoperative?
When your account becomes inoperative, restrictions will be put on transactions made on it like ATM withdrawals and internet banking facilities will be stopped. This is done to protect your account against misuse of funds by a third party without your knowledge.
Interest on the balance in your bank account will continue to earn interest irrespective of its status.
How to reactivate a dormant account?
Submit an application to reactive the account with necessary ID proof along with passbook and cheque book details at the branch of your bank. It will become operative in 24 hours. You will need to mention the reason for not using the account.
The bank will complete the KYC (know your customer) formalities and reactive the account within 24 hours.
What are charges for reactivating inoperative bank accounts?
No, your bank will not charge you a fee for activating an inoperative bank account but charges will be applicable if the minimum account balance is not maintained. This usually happens when the account was a salary account (which comes with no minimum balance requirement) and you have changed your job and forgotten to close it.
In case you have changed the bank of your salary account, it is better to maintain a minimum balance as even the withdrawal of any pending balance while closing will require you pay the penalty for non-maintenance. The bank usually has a buffer period of 3 months within which if no salary has been credited, it becomes an ordinary savings account.
Does it affect your credit score?
No, it would not, but it is ideal to close the bank account if not in use or just make a few transactions of small denominations every now and then. These can be done at the convenience of your phone through net banking and ATM cards.