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Saturday, May 24, 2014

Multiple bank accounts may just be more pain than gain

How many savings accounts does a person actually need? Many financial advisors are busy answering this question these days, as they try to educate their clients after the Reserve Bank of India (RBI) abolished the penalty for not maintaining a minimum balance in inoperative savings bank accounts.

Individuals end up with more accounts than needed when they switch jobs or opt for feature-rich accounts, without closing their existing ones. Experts say that the abolition of penalty should not be an excuse to hold on to accounts that one doesn't use regularly.

"Ideally, one should maintain one or, at best, two savings bank accounts," says VN Kulkarni, chief credit counsellor with the Bank of India-backed Abhay Credit Counselling Centre. "Both should be joint accounts with the spouse or any close relative. If you do not want to have a joint account, ensure that that a nomination is made. If you are dealing in shares or any other business activity on an individual basis, you can maintain an overdraft account. In case of regular business activities, a current account is required to be opened," adds Kulkarni.
Multiple bank accounts may just be more pain than gain

Case Against Multiple Accounts Experts feel that there are many reasons for limiting the accounts to a minimum of one or two. Maintaining multiple accounts would mean one has to constantly monitor all of them. Most individuals are not adept at this task. "It is important that customers close their accounts if they do not intend to use them at all, else they expose the account to potential fraud," says Japjit Bedi, director, deposits and wealth management, private and business clients, Deutsche Bank India. 

It could be a serious threat if you do not inform your bank about any change in your contact details. The bank would communicate to your old address or phone number, and you may not come to know about fraudulent activity. The RBI has issued instructions to banks for contacting account holders of dormant accounts. They may contact the introducers or accountholder's employers, in case accounthold er's contact details are not available. 

However, you need to be careful too. "Frauds can occur, at times, in collusion with insiders, as they know that the account holder has either forgotten about the account or has shifted and is not likely to return. So, fraudsters initially with start by making a small withdrawal; keep a watch for some time and thereafter withdraw the entire balance. Despite various systems that are in place, frauds do take place in inoperative or dormant accounts," says Kulkarni. It is in the interest of customers to approach the bank, submit required documents and get the account closed or reactivated. 

Closing or Reactivating Accounts If you are convinced on not keeping innumerableaccounts, go ahead and close them. You just need to follow a few simple steps for the purpose. "All banks have standard forms for closing an account. This form should be signed by the accountholders depending on the mode of operation and all unused cheques or debit card will have to be either returned to the bank with the form or destroyed by the customer," says Bedi. If your account shows some balance, you will have to specify the mode of payment — funds transfer, demand draft or banker's cheque — for transferring this amount to your operative account. 

"Do note that some banks levy a charge for closing accounts before expiry of a specified period of time," points out Bedi. If you want to reactivate any account after reviewing your holdings, ensure your bank gives you your due. "After the account is activated, you must ascertain whether interest has been credited," adds Kulkarni.

As per RBI instructions, interest on savings bank accounts should be credited on regular basis, irrespective of whether the account is operative or not. "For example, if a fixed deposit receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest," he says.
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