As life gets busy and priorities shift, it is easy to forget about the savings accounts you once opened. Perhaps you found better interest rates at another bank, opened a joint account with your spouse, switched jobs and created a salary account, or just got too busy to keep your accounts active. And so, it’s understandable if as time went by, your account became dormant, indicating no transactions for over 24 months.

People often assume that no activity means no problems, but the truth is that it can have serious financial consequences. From incurring penalties to missing out on investment opportunities, a dormant account can harm your finances in multiple ways. Let's highlight these risks in detail to understand why you must not leave your savings account dormant and what you can do about it.

  • Your account becomes inoperative

    When your savings account becomes dormant, it means that you can no longer access your money without going through a lengthy reactivation process, which includes contacting your bank, submitting KYC documents, and other formalities. In addition to the applicable restrictions, you won't be able to modify your contact information, change your address, update signatures, pay by cheque, or use ATM, internet, or phone banking unless you reactivate your account.

  • Penalties

    Most savings accounts have a minimum balance requirement that you need to maintain to avoid being charged a penalty fee. If your account balance falls below this minimum due to inactivity or insufficient funds, you will be subject to penalties.

    Let’s say you have a savings account with a minimum balance requirement of Rs 5,000. You made a recent purchase after which the account balance drops below Rs 5,000. If you fail to restore the required balance, you will be charged a penalty.

    Moreover, if you decide to open a new bank account online without keeping your old account active or closing it, the penalties will continue to accrue. This can cause a significant depletion of your account balance over time.

  • You miss out on rewards, cashback, and other benefits

    While savings account interest rates may be the most commonly known benefit, there are additional perks that can help you increase your savings. Some savings accounts offer cashback and reward points for making purchases through debit cards. These reward points can be redeemed for anything from gift cards to travel vouchers.

    Other accounts come with access to special programs, like discounts on insurance or free financial planning services. These benefits can often outweigh the interest earned on your deposit balance, thus, boosting your savings goals and helping you maximise your income.

  • Loss of investment opportunities

    Leaving your savings account dormant leads to missed investment opportunities and lost income potential. One such opportunity is auto investments, where a certain amount of money is transferred from your savings account to your investment account at regular intervals.

    You can invest that amount in stocks, bonds, or mutual funds to earn passive income. This investment approach can help you grow your wealth while keeping your financial goals on track.

Final word

While banks don't charge fees to reactivate a dormant account, it's important to keep it active to maintain your finances. Make regular transactions, withdrawals, and deposits, even if it is just once every six months so that your account remains operative. An active account helps you enjoy the features of savings accounts such as 24x7 access to funds, online fund transfer, mobile banking, and investment opportunities.

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.