As a young investor, you open a bank account for various reasons. It may be your new salary account when you change jobs or a bank account that comes bundled with your home loan account. Over time, you may end up with too many bank accounts. As per the World bank’s 2017 Global Findex report, 48% of account holders in India had a bank account that remained inactive in the past year. You may be surprised to know that this is the highest globally and about twice the average for developing economies. The laws in India presently do not cap the number of bank accounts that a person can have. In this context, this article explains the perils of having too many bank accounts and provides guidance on how many bank accounts you should have.
#1: Locking of money at a low-interest rate:
Most banks have a minimum balance requirement between INR 5,000 – INR 10,000. The average bank account interest rate is 4%. If you have 5 bank accounts and have an average of INR 12,000 in each bank account, you end up locking your INR 60,000 in bank accounts. Suppose you deploy this money in a good equity mutual giving a 12% return. In that case, you can earn an additional INR 4,800 each year by doing away with multiple bank accounts.
#2: Unnecessary costs:
A bank account does not come for free. You need to pay certain mandatory charges for cheque book, instant alerts, the annual fee for debit card etc. Since these charges are not very much, they can skip your attention. However, when you combine these charges across multiple accounts, you can realise that there is a scope for cost saving by closing unnecessary accounts.
#3: Hassle of changing address in the bank account:
This is a pertinent point if you have a transferable job or live in a rented accommodation in a city like Mumbai where you need to change flats every 1-2 years. As per KYC norms, banks generally don’t allow processing of address change in the account via online or phone banking mode. You need to personally visit the new branch and fill a form along with your valid KYC document. If it’s one or two accounts, it is okay. But multiple accounts mean you need to dedicate an entire day or two towards this activity. Suppose you don’t update your new addresses in time. In that case, your new cheque book, debit card etc., can get sent to your earlier address, causing you unnecessary hassle.
#4: Tax complications:
As per Income Tax Rules, taxpayers have to disclose the details of bank accounts in the income tax return. Multiple bank accounts may cause you to miss disclosing some bank accounts in your tax return. There is also a risk of failing to disclose interest and any other incomes credited into those bank accounts. In tax assessment, it can be a task to compile the transactions across multiple accounts. Also, you cannot hide your money from taxmen by splitting it into different bank accounts. Because all new bank accounts are linked to PAN, it is not difficult for the taxmen to locate all the bank accounts linked under a single PAN.
#5: Safekeeping and handling issues:
Every bank account comes with a chequebook and debit card. For each bank account, you also have the customer ID, the login ID and password for net banking, the phone banking PIN and the quick access PIN for the bank’s net banking app on your mobile phone. The more the bank accounts, the more the hassle of remembering and keeping track of everything. And there is a high chance that when you want to do an urgent transaction, you forget the password or find that your debit card has expired.
#6: Security risk:
Cyber frauds are increasing day by day. The more bank accounts you have, the more efforts you need to make to ensure that your accounts and identity are safe and protected. These efforts include changing passwords frequently, using a virtual keyboard etc. Every inactive bank account is like an open invitation to the fraudsters to use your bank account as a means to inflict significant financial damage.
#7: Risk of the account getting dormant:
The regulatory body RBI has guidelines for banks to classify inactive accounts over a certain period as dormant accounts. Banks will deactivate specific accesses for inactive accounts. In such a case, if you maintain bank accounts that you don’t use regularly, it can turn dormant. Later on, if you wish to reuse that account, you will need to apply to the bank for the same. You can avoid this hassle by maintaining a limited number of accounts.
Our view: How many bank accounts should you have?
Try and stick to 2 bank accounts only. One is your salary account. The second is your personal account. Make it “either or survivor” so that they can access it if you cannot do so. If you are self-employed, instead of a salary account, you will have a current account. Ensure that you perform business-related transactions only through your current account. Close your previous employer’s salary account when you switch jobs. Link your personal account to your employee provident fund, mutual funds and other investments. Withdraw your money and close all existing mandates on the account before you close the account. Get documentary proof from the bank that it has closed your account. Shred the cheque book and debit cards for additional safety.
You simplify your financial life a great deal when you close unnecessary bank accounts. It helps you save on costs, reduce hassle and also helps you organise your finances, rather than having them spread everywhere.
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