Banking advice that every
working individual must
keep in mind

I switched my job six months ago. While I took care of the exit formalities with my previous employer, and joining formalities with my current employer, I totally forgot about my previous salary account, which was with a leading private bank. Possibly because the transition process from one job to another takes time and dealing with our previous salary account, among other things, takes a back seat.

A couple of weeks ago, I suddenly remembered my idle salary account and decided to deal with it. I visited the nearest branch and enquired about the account. To my surprise, the salary account had been converted into a regular savings account (after three consecutive months of nil payments by my employer) and a huge penalty was levied for non-maintenance of the prescribed average quarterly minimum balance in the account. This is the general norm across most banks, where an ‘idle’ salary account is converted into a normal savings account after a certain period (usually three consecutive months). The individual no longer enjoys ‘zero-balance’ facility and the freebies usually associated with a salary account. Your erstwhile salary account will be treated as a savings account. In case your new employer uses the same bank as your previous employer for crediting salaries, you can intimate the bank about this and in that case, few internal changes would need to be incorporated for your salary account to continue.

After your account is converted into a savings account, the bank usually levies a penalty for non- compliance with prescribed balance limits. This penalty keeps accumulating and after a certain period, your account forecloses. The major disadvantage with this scenario is that it will reduce your CIBIL score, which most financial institutions use as a reference point for credit worthiness. Also, the bank would usually levy sundry charges (such as reissuance of cards, SMS alert charges).

Most private players prescribe a minimum balance of Rs. 5,000 to Rs. 25,000. For many salaried employees who are at junior levels, or hold mid-managerial positions, this amount is substantial, and locking it in to maintain an account would not be prudent. If the customer enjoyed higher interest rates, doorstep banking, and other services, closure of such an account might bring significant disadvantages.

Customers who hold salary account with public sector (PSU) banks such as State Bank of India and Canara Bank would not face these issues, since the prescribed minimum balance for their savings account is nil or negligible (Rs. 500-1,000). It is advisable to maintain accounts in these banks as they are exclusive vendors for certain government schemes or investments.

A quick piece of advice for those who recently quit their jobs. Quickly scan through your bank's normal savings account norms and decide whether you would like to continue with it. If you decide against it, immediately clear the balance and close the account before you are levied huge fines for not maintaining the minimum quarterly average balance.

Disclaimer: Copyright Kotak Mahindra Bank Ltd.