Why You Should Close Your Surplus Bank Accounts

By BankBazaar | April 23, 2017

Why You Should Close Your Surplus Bank Accounts

Most people have multiple bank accounts. It could be because people prefer to keep separate accounts for salary, savings, investments, etc. They may have an account for every job they’ve had, or one in every city they’ve lived in.

Often, people forget to close these surplus accounts. This is not a minor matter.

Here are six reasons you should close surplus bank accounts—especially now that the rules of banking have changed in the post-demonetisation era.

  1. Monthly Balance Pains

Almost all savings bank accounts need you to maintain a minimum monthly balance. Most banks have a limit of about Rs. 5,000-10,000 but some in urban areas can go as high as even Rs. 20,000. If you have multiple accounts you will be liable to maintain that limit—and this could be financially stressful. If you live in a major city and have five different accounts, you may need to maintain at least Rs. 10,000 to Rs. 20,000 per account. This is detrimental to your savings plan and a wasteful exercise. Recently, even public sector banks have started imposing monthly balance requirement.

Remember that a zero-balance salary account will convert to a regular savings account once you leave your current job and if no monthly salary gets credited to that account. This transition happens in about three to six months.

So be careful with the number of savings accounts you hold or be ready to save quite a bit to maintain that limit. Failing this, banks will begin charging you for non-maintenance of the balance as per their penalty structures.

  1. You Will Lose Interest

This is a continuation of the above point. The more accounts you hold, the more money is used in maintaining those minimum limits. In a savings bank account, you will only earn an interest of about 4-6%. You could instead be generating higher returns on that money through Mutual Funds or Fixed Deposits.

Suppose you have a balance of Rs. 1,00,000 across all your savings bank accounts for a whole year for which you earn an interest of 4% p.a. You would have earned Rs. 4,000 as interest in the entire year. This is an opportunity lost. It is not advisable to generate low returns on a large sum of money kept as balance. Therefore, you could close old accounts and move their balance into investment options.

  1. Misuse Likely

If you have too many surplus accounts then you have the risk of losing sight of them. Most people with multiple accounts struggle to pay attention to all of them. They do not realize that their inactive or dormant accounts could be attracting unwanted attention, especially if there’s a large balance in those accounts. Before unscrupulous people find a way to siphon off your funds without catching your attention, you must act with haste and shut down inactive accounts.

  1. ITR Filing Confusion

Having too many accounts in your name could complicate your income tax returns filing process. Going through the statements of several of your accounts is quite a task. But it would be your duty to report your earnings correctly, so you must take cognizance of all your account statements. Therefore save yourself the trouble: minimize the number of your accounts, and make your ITR process easier.

  1. Unnecessary Charges

There is a possibility that you hold Debit Cards for all the accounts in your name. A Debit Card is usually not a free service. Most banks charge around Rs. 200-500 every year as Debit Card fee. Cancel your unnecessary accounts to stop paying a fee for a service you are not availing. Not just this, banks also charge for various services such as SMS alerts. For every account you hold, you may be liable to pay these charges as per each bank’s terms and conditions. Moreover, irregularity in paying these charges also disrupts your relationship with your bank.

  1. Services Get Impacted

It is quite likely that if you have multiple bank accounts, some of them go through periods of inactivity. A bank account is termed inactive if it has not had any transactions in 12 months. After 12 more months of inactivity, it is labelled a dormant account. Once an account becomes inactive, you may not be able to perform service requests like ordering a new cheque book. Once the account is dormant, you may be prohibited from making transaction. If you are unable to make periodic transactions from your account, it may be advisable to close them to avoid the troubles of reactivation.

Consolidate your accounts, reduce the charges you pay towards banking services, and simplify your money

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