One of the rules of maintaining a savings or current account is that you need to keep your account active. Any savings or current account that has been inactive for 2 years is usually labelled as a dormant account.
This article will help you with everything you need to know about dormant bank accounts, why banks render them inactive and how to reactivate them.
A savings bank account or a current account that doesn’t have any credit or debit transactions for over a year, is rendered inactive by the bank. If the account stays inactive for more than 2 years, the bank renders the account status dormant.
An account is also made dormant if the account holder doesn’t withdraw any funds for 24 months. However, dormant accounts are free of statute limitations. This means the beneficiary may withdraw funds at any time. These guidelines are laid by the RBI.
The types of accounts that can be rendered dormant include brokerage accounts, checking and investment accounts, pension fund accounts, etc. The period an account can stay dormant differs based on the type of account.
Interest transactions, dividends, and mutual fund transactions are not regarded for deciding the dormancy status of the account.
The goal of classifying accounts as inactive or dormant is to reduce the risk of fraud. Once inactive and dormant accounts are identified, the dealing staff is notified of increasing the number of dormant bank accounts. This enables them to pay extra attention to the transactions made through these accounts to track fraudulent activities and suspicious transactions.
The bank renders the dormant savings account inactive to ensure that the money is safe from fraudulent transactions. It is easy for bank employees to get a sample signature of an account holder.
Unscrupulous employees may use it to withdraw money using withdrawal slips. Banks prevent such frauds by grouping the bank accounts as dormant and keeping an eye on them.
The only criterion for an account to be active is user-induced transactions. You can prevent the account from becoming inactive or dormant by using it periodically. Some ways to do it are to withdraw cash, transfer money using net banking, or make cheque payments.
These transactions can be made once a year to avoid penalties. Some other credit/debit transactions that prevent an account from dormancy are outward bills, inward bills, cash deposits, cheque deposits, and internet banking transactions.
The mandate for crediting interest from FD to a savings bank account is also regarded as a customer-induced transaction, and these credits help to keep the account active.
If you do not need the account anymore, withdrawing all money and closing it may be a good idea.
Refer to the table below to understand the difference between a frozen account and a dormant account:
|Dormant Account||Frozen Account|
|An account is considered dormant if it’s inoperative for 2 years or more||When a concerned bank shuts down transactional activities of an account it’s called as frozen account|
|Alternatively called as inoperative account||Alternatively called as blocked account|
|Banks have the authority to consider an account dormant as per RBI guidelines||SEBI, RBI, judiciary or income tax department representatives have the authority to freeze an account|
|Usually happens when to transaction takes place from the account for 2 years||An account is frozen based on suspicious or illegal activities|
|Banks notify the account holder before making an account dormant||Accounts are directly frozen as per directives from the legal authorities|
|You can reactivate a dormant account based on application||Reactivation lies solely at the discretion of the concerned legal authorities|
Follow the steps below to reactivate a dormant bank account:
Step 1: The account holder must make a cheque transaction or ATM withdrawals
Step 2: If the account holder has other active accounts with the bank, they can send secure message using their internet banking ID stating that they wish to move some money from this account to the other.
Step 3: The account holder must clarify the reason for not using the bank account through an application form
Step 4: The bank will then verify customer credentials before reactivating the account
Step 5: The bank account holder must produce valid ID and address proofs and be physically present at the bank. The nearest bank branch can guide about KYC formalities
Remember, the RBI guidelines do not allow banks to levy charges for activating dormant account
Here are a few pointers that you should consider before reactivating your account:
A recent mandate from the reserve bank of India mentions that banks must annually review all accounts that have not been used for long. They must later send out a written communication seeking the reason for not using the account for more than a year.
The bank will record the details if the customer has moved to another bank account. These can then be used to transfer money from a dormant account to the new one.
However, interest on savings accounts should be credited in times irrespective of account status. Any amount left in the account will attract interest.
The account owner of an inactive account has limited rights. Here are the restrictions that apply:
Rendering accounts inactive or dormant is a way for banks to prevent fraudulent transactions on accounts not been used for long. If you do not need a bank account, it is in your best interest to close it to avoid penalties and fraud.
Ans. An account that hasn’t seen any customer-induced transactions for over 2 years is added to the dormant category by the bank. This categorization allows the bank to monitor the account and prevent any fraudulent transactions.
Ans. According to RBI guidelines, banks must not levy charges to reactivate dormant accounts. Reactivating a dormant account is free of cost.
Ans. Yes, doing 1-2 transactions annually can help to keep your account active. These do not need to be major transactions, even a rupee debit is enough to prevent the account from becoming inactive/dormant.
Ans. No, inactive and dormant accounts differ based on the amount of time they have been left unused. If an account holder doesn’t operate the account for 12 months, it becomes inactive, whereas, after 24 months of no transactions, it becomes dormant or inoperative.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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