How many bank accounts do you hold? 2? 3? 4?
How about that one account that you opened while in college and haven't bothered to check again? Has it been two years since you withdrew from or deposited money in that account?
You may be surprised to find that you are not able to transact in that account anymore. This is because that account of yours is now designated as a dormant.
Fortunately, it's quite straightforward to get these accounts back in active state. This post covers dormant accounts in detail as well as lists steps to reactivate them...
How and Why does a bank account become dormant?
If you haven't done any transactions in your account for 12 months, it will be classified as an Inactive. If you don't do any transaction for further 12 months, it will become Dormant.
Effectively, a savings account is considered dormant after 24 months of inactivity where no valid transactions happen.
The transactions that are considered valid are customer or third party initiated and include both debit and credit transactions.
Some examples are withdrawal of cash, payment through cheque or internet banking, use of phone banking or ATMs etc. Any dividends received or EMIs will be considered as valid transactions. Any interest credited on fixed deposits with the same bank are considered valid transactions too.
Any transactions that are bank-initiated are not considered valid for the purpose of determining the dormant status of your savings account. These include automatic interest payments on your savings balance or penalty deductions or service charges that may be levied from time to time.
Essentially, if there is no self or third party transaction for a period of two years on a trot, your account will be marked as dormant.
The main intent behind this rule is to reduce the risk of fraudulent transactions in what are essentially ignored savings accounts.
RBI advises banks to exercise diligence and bank staff will pay attention if there is a sudden request for a withdrawal from an inactive or a dormant account.
Further, RBI has banned banks from deducting minimum balance penalties from a dormant account, hence providing an additional layer of protection against unintended deductions.
Imagine a scenario where you have left an savings account unattended for a long period of time.
And when you revisit it to withdraw your balance, you discover that your balance has been depleted, either because of regular non-maintenance penalties levied by your bank or some fraudulent transactions that you never noticed.
This rule prevents all such scenarios.
Currently, only savings and current accounts are marked as inactive or dormant while other account types will continue to stay active even after 24 months.
What restrictions will you face with dormant accounts?
RBI hasn't clearly defined the restrictions to be placed on dormant or inactive accounts. All it does is to advise the banks to exercise due diligence before clearing transactions in these accounts.
Because of this, the restrictions will differ from bank to bank.
Most banks will impose restrictions on ATM, net-baning and phone-banking transactions. Some will extend these restrictions to cheque transactions as well. Others won't allow change of address, issue or renewal of a debit card, cheque book requests etc.
In most cases, you can expect following restrictions on an Inactive accounts:
- No issue of a fresh cheque book
- No new debit card
- No access to internet banking
Once it becomes dormant, you can expect following additional restrictions:
- No withdrawal of money from an ATM or a bank branch or through phone banking
- No debit card renewal
- No modification of Signatures
- Not able to change address or email id or contact number
- No addition or deletion of a joint holder
Not being able to get what's essentially is your money on time may be frustrating and it's best to prevent your account from going dormant or inactive in first place itself.
How to prevent your account from becoming dormant?
Well, the easiest way to ensure that the account doesn't become inactive is to make a small transaction regularly. This may be a small deposit or a withdrawal and can be done easily through net banking.
Even if you don't transact for a long time, you will typically get a notice from a bank 3 months prior to an account becoming dormant.
You can choose to reply to this communication and provide reasons for not operating your account. If the reasons are considered valid by the bank, you will get an extension of 12 months and your account will continue to be treated as being operative for this extended period.
But, ideally as soon as (or prior to) you get this notice, you should make a small deposit or withdrawal. If you do so, your account will be safe from getting marked as dormant for another 24 months.
One quick mental tip to ensure that your accounts never become dormant is to earmark different bank accounts for different purposes. E.g. Use one account for bill payments, other for investments, third for credit card payments and so on.
This way, all of your accounts will have regular transactions and will never become inactive.
Further, the root cause of accounts going dormant is typically one having too many bank accounts. If that's the case with you, it's best to close the accounts that you don't need.
These days it's really easy to open a new savings account and it doesn't make sense to continue to retain an account that you know you won't use for an extended period of time.
So identify the accounts that you don't need and file an application with the respective bank to close them.
How to Reactivate your account?
If your account is in 'Inactive' status, all you need to do is to do a small transaction via an ATM or through a Cheque. This transaction can be made between month 12 and month 24 of inactivity.
However, if your account has already become dormant (i.e. it has been inactive for more than 24 months), you won't be able to do any such transaction. Don't worry though, your money is still available to you once your reactivate your account.
Banks are mandated to exercise due diligence before they reactivate a dormant account and sudden requests for withdrawal from a such accounts are bound to be treated with caution.
But, you will find that the process to reactivate these accounts is fairly straightforward.
Since RBI only instructs banks to exercise due diligence and hasn't defined any standard reactivation process, the actual process of reactivation will differ from bank to bank.
Most banks, none-the-less, will have following steps:
1. Submit a written Reactivation Application
You will have to file a written application to reactive your dormant account.
This application should contain your reason of not transacting and should be addressed to the branch manager of the respective bank.
If your account is a joint account, all the account holders will have to sign this application.
2. Submit KYC documents
You will have to submit your KYC documents alongside your reactivation application.
The KYC documents that will be needed will be same as those needed while opening a new account.
You will typically need:
- Two passport sized photographs
- Address proof
- Identity proof
- PAN card
- Your old passbook, cheque-book and ATM/Debit card
Your signatures may be verified at this stage before bank accepts your request for reactivation.
3. Make a small deposit
Once you complete the reactivation procedure, your bank account should typically be reactivated in 24 hours but may take as long as a week in some cases.
As soon as this reactivation happens, make a small deposit to keep your account from going dormant again. Some banks may ask for this deposit alongside your reactivation request itself.
Do note that for reactivating your dormant account, you will probably have to visit your bank branch in person. Some banks do offer online reactivation but that's an exception more than a rule, though if you are an NRI, do request your bank for same.
Do I need to report dormant accounts as part of Tax filing?
Yes, you still need to report all the bank accounts even if they are currently dormant or inactive.
One exception to this rule is, if your bank account has been non-operational for more than 3 years. In that case, you don't need to declare it.
How to know if an account is inoperative?
If a bank account has been inoperative for more than 10 years, banks will allow an inoperative account search. SBI, ICICI and HDFC, all allow this search on their websites.
You can follow following links:
You may use this facility to search for accounts that you may have otherwise forgotten about.
Points to note
- There are no charges for reactivating your dormant bank account as RBI has prohibited same. Further, banks can't charge minimum balance penalties on these accounts.
- You will be informed three months before your account is classified as dormant. If you do a transaction with in next 3 months, it will stay active for another 12 months post which it will be marked as Inactive.
- Banks follow standard durations and all of them will mark your account as inactive after 12 months and as dormant after 24 months. Some banks may provide you an extension of 12 months provided you reply back with valid reasons.
- Fixed deposit interest credit is a valid transaction when considering the dormancy status and if it is being credited regularly in your bank account, it won't go inoperative. Please note that this is not the case with savings account interest which is not considered as a valid transaction.
- Even if your account is marked as dormant, you will continue to earn interest on your savings account balance. Same will be available to you whenever you reactivate it.
And that's it. Let me know if you have a question.