161949 SIP myths you must know!

Most of us have two, or perhaps more savings account. While some open additional savings account to benefit from better account features and customer service, other accounts are just a legacy of the previous employment or banking needs.

However with time, some of the additional accounts become idle and have the potential to adversely impact your financial health.

Here are four reasons why you should close idle savings accounts:

Requirement to maintain MAB (Monthly Average Balance)

Most savings accounts come with MAB requirement of Rs 500 – Rs 25,000 per month. In case of premium savings accounts or super-premium ones, this requirement can easily go up to Rs 1 lakh or more. Thus, having a higher number of savings account can translate to more money being locked in for maintaining MABs. Failure to comply with the MAB requirement would attract non maintenance charges, which can usually go up to Rs 650 per month.

Remember that zero balance salary accounts with no salary credits for 3 consecutive months usually get converted into regular savings accounts and thus, require depositors to maintain MAB in those accounts too.

Charges associated with savings account can reduce your MAB

While saving accounts does not incur annual maintenance charges, debit cards associated with such accounts generally incur annual charges. These charges usually range from Rs 100 to Rs 750, which can exceed the yearly interest earned by many in an idle savings account. Apart from the debit card annual fee, value added SMS alert fee is also levied by banks, regardless of the usage of the savings bank account. As these charges are directly deducted from your savings account, continuous deduction over the years might lead your monthly average balance to fall beyond stipulated minimum MAB and thereby, incur MAB non-maintenance charges.

Generates sub-optimal returns as compared to alternative investment option

The interest rate of savings accounts usually range between 2.9% to 4.75% p.a. for deposits within Rs 1 lakh. Hence, keeping your funds locked in an idle savings bank account would attract opportunity cost, depriving you from earning higher returns from other investment instruments. While some private sector banks and small finance banks may offer comparatively higher interest rates of 5% to 6% p.a. on some of their saving deposit slabs, parking funds in fixed deposits instead can earn you up to 7.25% p.a.

Conversion of idle savings bank account into inactive or dormant status

Savings account with no transactions for 12 months is categorised as inactive by the banks. When account holders do not make any transactions for 24 consecutive months, their accounts get classified as dormant account. While banks do not put any restrictions on transactions through inactive accounts, crucial banking services like ATM transactions, phone banking and third party cash transactions get disabled, until they are reactivated.

Moreover, banks might even deny request for issuance of cheque books, debit cards, etc, in dormant accounts. The fact that your savings bank account was left un-operated for 24 months means that the account holds no utility for you and hence should be closed.

Having multiple savings accounts comes with their own set of benefits in the form of higher flexibility, better cash management, vouchers, cash back offers etc.

Optimum utilisation of various transaction related limits of your multiple savings bank account can assist in reducing your transaction costs. However, idle saving accounts with poor features should be done away with as continuing with them can result in opportunity loss of generating higher returns from alternative instruments. It can even cause monetary loss by incurring annual charges for debit cards and non-maintenance charges.

(The writer is Director, Paisabazaar.com. Views expressed are personal)