Managing multiple financial accounts can be challenging, and with the demands of everyday life, it is easy for some accounts to be neglected and become inactive. When this happens, accounts may be classified as either inactive or dormant. To properly manage your finances, you must first understand the distinction between the two. Although inactive and dormant accounts share certain features, they have different effects and management techniques. This blog will explain what a dormant account is, how it varies from an inactive account, and how to maintain or revive it. Understanding these features allows you to manage your funds and prevent any difficulties associated with dormant accounts.
What is a Dormant Account and Conditions in Which the Account is Considered Dormant?
A dormant account is which has been inactive for an extended period, often over a year. This action may include depositing or withdrawing money. Banks mark accounts inactive to prevent unauthorised activity if the account owner forgets about them. For example, at ICICI Bank, the account becomes dormant after 24 months of no activity.
Difference Between Inactive and Dormant Account
| Feature | Inactive account | Dormant account |
|---|---|---|
| Meaning | An account with no activity for a short period. | An account that has been inactive for a lengthy period. |
| Inactivity duration | It is generally 3-12 months | Longer than one year, typically 1-2 years. |
| Account reactivation | May change back to active with a simple transaction. | Requires a more formal process to reactivate. |
| Impact | Minimal, the account remains largely the same. | Accounts may be frozen or restricted. |
| Bank communication | Minimal communication. | Increased communication efforts to inform account holders. |
How Do Accounts Become Dormant?
A bank account becomes dormant when the user does not perform transactions for a specific time. The Reserve Bank of India (RBI) has stipulated that a savings account or current account is considered dormant if there are no transactions for more than two years. However, some banks may consider an account inactive after one year of inactivity and dormant after two or three years.
Transactions counted:
Transactions that count towards keeping an account active include Deposits of cash or checks, Withdrawals or deposits made at an ATM, and Online transactions.
Transactions not counted
Interest credited to the account balance and charges debited by the bank are not considered transactions.
When an account becomes dormant, it remains open but inactive, and the account holder cannot use certain features like online banking or ATM withdrawals. Banks may have policies to handle dormant accounts, such as charging fees, restricting access, or transferring funds to a separate account.
Log in to the iMobile app, click Services, then Activate Inactive/Dormant Account.
Activities Restricted in a Dormant Account
A dormant account can include no deposits, debit or credit transactions, ATM withdrawals, or automated transactions. While the account is still there and may continue to earn interest, it can limit what you can do with it. For example, you might not be able to:
- Write cheques
- Renew your debit or ATM card.
- Change your address
- Use online banking
- Withdraw money from ATMs
- Add or remove a joint account holder.
- Change your signature
- Make transactions at a bank branch.
How to Reactivate a Dormant Account
Here are some ways to activate a dormant Bank account at major institutions such as ICICI Bank:
Internet banking
Log in to Internet banking, go to Service Requests, then Activation of Inactive/Dormant Account, and fill in the required details.
iMobile
Log in to the iMobile app, click Services, then Activate Inactive/Dormant Account.
Send an activation request to nri@icici.bank.in or customer.care@icici.bank.in
Call customer care
Call ICICI Bank's 24-hour customer care.
Visit a branch
Visit the nearest ICICI Bank branch in India.
There might be changes in process to reactivate your dormant account at other banking institutions, therefore it is advisable to contact the respective branch for complete details.
Documents Required
- To reactivate a dormant account, fill out an application and provide self-attested KYC documents (PAN card, Aadhaar card, Passport)
- Proof of making at least one financial transaction in the bank account.
How to Prevent an Account from Becoming Dormant
To prevent your account from becoming dormant, you can try these tips:
- Make at least one transaction in your account every two years.
- Create a standing instruction for recurring transfers from another account to your bank account.
- Connect your bank account to a mobile wallet or UPI app to make recurring payments.
- If you expect to be inactive for long, notify your bank and ask them to keep the account active.
Consequences of Dormant Account
These are the following consequences of a dormant account:
Loss of interest
Some accounts, such as savings accounts, may stop accruing interest once they become dormant. It means account holders miss out on potential earnings.
Restricted access
Dormant accounts may have restricted access. Account holders might find it hard to perform transactions, withdrawals, or other changes without reactivating the account.
Escheatment
After a prolonged period of dormancy, the account may be subject to escheatment, where the funds are transferred to the bank’s unclaimed property division. Recovering these funds can be a complicated process.
Affects credit score
While dormant accounts themselves do not typically affect credit scores, any associated penalties, fees, or issues arising from a neglected dormant account can indirectly impact one’s credit if it leads to debt or collections.
Security risks
Dormant accounts are often more susceptible to fraud or unauthorised access, as they are less frequently monitored by account holders. It can lead to financial losses.
Important notifications, such as changes in terms, conditions, or interest rates, might be missed if the account holder is not actively monitoring the dormant account, leading to uninformed decisions or missed opportunities. You must regularly check your account status to avoid missing any notifications.
Conclusion
It is essential to track and maintain your accounts to avoid inconvenience. Some accounts are easily forgotten, and they can result in extra charges, limited access, and even security problems. You can keep your accounts active by regularly checking them and doing things like making frequent transactions, setting up alerts, and knowing your bank's rules. Taking care of inactive accounts early allows you to maintain control over your funds and avoid difficulties. Keeping track of your accounts is essential for successful financial management.