Gurugram-based Shrinidhi Shetty, 35, has six bank accounts registered in his name. He opened these accounts over a course of time for various reasons. “One account was for my demat account, two for home loans, three were salary accounts which I had to open each time I changed jobs and the sixth one was to facilitate the processing of my Aadhaar," said Shrinidhi, a petroleum engineer.
All six bank accounts have been serving
some purpose but Shrinidhi has been planning to close at least
three of them for a while now. “One of the accounts I want to
close offers a higher interest rates on fixed deposits while the
other offers a better banking experience in terms of technology
and ease. The third account (salary account) which also has
very low activity was for one of my previous jobs," said
Shrinidhi. He has about ₹25,000-30,000 parked in these
accounts in order to maintain the minimum balance
requirement. Could he have made better use of this money?
Shrinidhi is not alone. Many people end up opening multiple
bank accounts either when they change jobs or for saving for
specific goals like buying a house, child’s education and so on.
According to the World Bank’s 2017 Global Findex report,
almost half of the account holders in India had an account that
remained inactive in 2016. This is the highest in the world and
about twice the average of 25% for developing economies. Read
on to know how much is too much when it comes to bank
It’s important to understand that the more bank accounts you
hold, the more money you keep locked in those accounts. Most
banks demand a minimum balance requirement from an
account holder and non-maintenance could attract penalty.
The minimum balance requirement could range anywhere between
₹5,000- ₹10,000. This means if you have, say, five savings
accounts, then you would have to put aside about ₹25,000-
“The minimum balance would give you returns at a rate of 3-4%
per annum. Instead, if you put this money in a fixed deposit,
you would be drawing nearly twice as much interest. Savings
accounts also come with other expenses in the form of debit
card charges that have to be paid regardless of the usage," said
Adhil Shetty, CEO, BankBazaar, an online financial services
marketplace. Note that if your zero balance savings account or
salary account is not credited with salary for three consecutive
months, then your bank could turn such a zero balance savings
account into a normal savings account, forcing you to maintain
the minimum average balance.
If an account has been inactive for two or more years, the bank
considers it dormant. In such a case, you would not be able to
perform any transactions from that account via debit card,
cheques, online or mobile banking. You will be required to
reactivate the account by submitting a written application. If
it’s a joint account, all the holders will have to give their
“Apart from losing returns on idle funds (minimum balance
requirements for each account to be maintained), ensuring
analysis of each account for tax returns could get cumbersome.
Remembering and changing passwords frequently for online
access and recalling them could be other issues," said Lovaii
Navlakhi, managing director and CEO, International Money
Matters, a financial planning firm.
What to do
Navlakhi said, the lesser the better when it comes to bank
accounts. Shetty said one should restrict the number of savings
accounts to two. “The first would be your salary account, the
other should be a joint account with your parents or spouse
where you can park your emergency funds. A joint account
would ensure that your family can access the money in case of
an emergency where you are not available immediately," said
You could also go up to three accounts with one
permanent account, one joint account with your spouse or
partner and one salary account. “The salary account could
change each time you change your job and hence maintaining
one permanent account where your investments such as mutual
funds or employees’ provident fund are linked helps. Remember
the more accounts you maintain, the more minimum balances
and cards you will need to keep. It’s advisable to close the older
accounts," said Shweta Jain, chief executive officer and founder,
Investography, a financial planning firm.
Furthermore, you may not even realise how much or what you
are paying in charges because almost all services offered by
banks come with a fee. “You might swipe one card thinking it is
another. In fact, this has happened with me too. You may not be
able to track expenses as they are all over the place," said Jain.
With the universal account number (UAN) now taken as your
EPF ID, no new EPF accounts need to be opened each time you
change your job but you may have to update your bank account
with the EPFO. Having a permanent account helps in this case.
“People find it difficult to change the bank details in the long
run when they try to withdraw the money from their EPF
Similarly, if you link your other long-term investments
such as mutual funds or public provident fund with multiple
bank accounts, it could lead to a lot of confusion," said
Basavaraj Tonagatti, a certified financial planner and Sebi-
registered investment adviser. A simple solution would be to
use your permanent bank account as your main operating
account. Set up an electronic transfer to the main account each
time you change jobs, and then close the older bank accounts.
Your bank account, PAN and Aadhaar are the three vital
identities for your financial life. From tax payments and
investments to paying your utility bills, all of these require your
bank account, PAN and Aadhaar to be linked for know your
customer (KYC) purpose. It is best to use one permanent bank
account and make sure it is linked with all your financial
dealings such as income tax payments, EPF, PPF, mutual funds,
demat account and for your monthly bill payments," said
Understand that closing all unwanted bank accounts means less
chance of misuse as having fewer accounts makes it easier to
track transactions regularly. Shetty said, fewer accounts also
means easy tax filing with fewer receipts and interest earnings
to put in record.
Once you’ve realised that you’ve not been using a particular
bank account for three to four months and there are no
transactions or standing instructions linked with that account,
it’s best to close it
If you have changed jobs and have to open a new salary account
with the new company, you could close the old salary account
over the next two months. “Typically, three months after one
has quit the job, salary accounts tend to have a minimum
balance requirement. This is a good reminder to close it and
move on," said Jain.
However, before closing the account, make sure that there are
no dues left and all the National Automated Clearing House
(NACH) mandates are de-linked or moved to another account.
Having up to two bank accounts is ideal, or at best three. But
beyond this, it does no good to your money life.