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Do you own any of this money?

Do you own any of this money?
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First Published: Tue, Jan 04 2011. 09 17 PM IST

Graphic :Shyamal Banerjee/Mint
Graphic :Shyamal Banerjee/Mint
Updated: Tue, Jan 04 2011. 09 17 PM IST
Any guesses what do the numbers, 10171368 and 13603200000, stand for? No these are not an IP address of a website. The two indicate the money we have but aren’t using. The first number, 10,171,368, or 10.71 million, is the number of accounts that are lying idle in various banks of the country. And the second and bigger number is the money lying in these idle accounts—a hugeRs1,360.32 crore—according to data provided by the Reserve Bank of India as on 31 December 2009 on unclaimed deposits.
Graphic :Shyamal Banerjee/Mint
The above numbers simply tell that at least 10 million people did not claim their own money (Rs1,360.32 crore) lying idle in their bank deposits for at least 10 long years (that’s the time it takes to make a deposit “unclaimed”).
Also See | (Grahpic)
There is no doubt that these number would have increased by now. A quick dipstick survey shows three-fifths of the sampled people had at least two accounts that they did not use for a year or more but the accounts had some funds. One of the most common reasons our sample gave for not using accounts was job change. With every new job, they are made to open a new bank account and the older one is left unused, at times even forgotten for years together.
When does an account become dormant
If you do not use your account to make any kind of transaction for at least a year, most banks consider it as an inactive account. The period varies from bank to bank. The next stage is when an account becomes dormant. Typically, when the no-activity period goes beyond two years, an account is tagged as a dormant account.
Also See | (Graphic)
The period varies form bank to bank. For instance, ICICI Bank Ltd’s website says, “ICICI Bank may classify an account as an inactive if there are no customer-induced transactions for 15 months in the account. Dormant if there are no customer-induced transactions for 18 months in the account. That is no customer-induced transactions for three months after the account had become inactive.” In case of HDFC Bank Ltd, an account becomes dormant if it’s not used for a period of two years.
Who transacts:Remember that the transactions undertaken by the bank on your account is not taken into consideration when calculating the no-activity period. In other words, even if your bank debits your account with a service charge or credits your account with payment of interest, the transaction won’t be considered as an activity from your side. Transactions initiated from your side (debit or credit) or a third-party transaction on your account are required to keep the account live.
Why you shouldn’t keep a dormant account
It’s expensive: One of the biggest costs that you pay for keeping an account dormant is the opportunity cost. The money lying idle in your account earns an interest rate of 3.5% per annum only.
If you had kept the same amount in a liquid fund or a liquid plus fund you would have earned a return of 4.5-4.75% per annum. In a fixed deposit, the idle money would have got 7.5% per annum. At the same time, a Public Provident Fund (PPF) would have given you 8% tax-free returns on the amount. If you are thinking PPF is a long-term instrument, think of the numbers mentioned at the beginning of the story. That much money wasn’t claimed for 10 years.
Another option is to convert it into a sweep-in account, which is a savings account-cum-fixed deposit product. In these accounts, any surplus amount above a pre-determined limit gets automatically swept into a fixed deposit account, which earns more than 3.5% per annum.
Even if you don’t have a large amount parked in these accounts, there is a minimum balance to be maintained. If you fail to do so, most banks would slap you with a fee even if the account is inoperative or dormant state. And that too over and over again—for as long as your account stays dormant. For instance, Punjab National Bank charges Rs150 per quarter for not maintaining the minimum balance, for Barclays Bank India, the fee is Rs250 per quarter. This fee varies from bank to bank and is in range of Rs75 per quarter to as much as Rs1,000 per year.
Eventually, your account will reach a stage where it may actually run into a negative balance. Some banks close the account in such cases, but there are some that have accounts in dormant state showing a negative balance and you may end up owing money to the bank for the fee.
However, dormant accounts do not get reflected on your credit report even if they show a negative balance. Arun Thukral, managing director, Credit Information Bureau (India) Ltd, says, “Only the assets from the banks’ point of view are a part of the credit report. Savings accounts or other types of deposits are never included.”
Dormant accounts may not work against your creditworthiness, but they are possible cases of fraud.
It’s risky: Frauds are on the rise in the Indian banking industry and identifying a fraud in an unused account isn’t easy.
There have been instances where bank employees have embezzled small amounts of money from such inoperative or dormant accounts or even fixed deposits that haven’t been claimed for a long time.
Says Mayur Joshi, chief executive officer, Indiaforensic.com, a financial fraud investigation company, “It’s best to close an account that is not used since keeping it inoperative or dormant is risky. It’s possible that a dishonest bank employee can forge your signature to steal small amounts or transfer funds from your account to another account or even use such account for illegal activities.”
Moreover, the possibility of identity theft and net banking frauds cannot be ruled out, especially in an ignored account. ICICI Bank’s website says, “Such accounts are prone to be used for illegal transactions, laundering money or funding terrorism, any of which could land a bona fide customer in serious trouble.”
In cases where you have moved location and failed to update the current address on such dormant accounts, your account statements and other correspondence sent to you by the bank can be misused.
Why you shouldn’t have too many accounts
Says Rajesh Kadam, a Mumbai-based certified financial planner, “An individual should not have more than two savings accounts. One, with a nationalized bank and the other with a private sector bank. Or maybe one for savings, while the other linked to investments. Any other account kept, but left unused, is not safe.”
Moreover, it’s inconvenient to maintain many accounts. The higher the number of accounts, higher would be the number of account numbers, personal identification numbers, debit card numbers and endless papers to handle.
Besides, whatever little interest you earn on each of them will have to be taken into account while calculating your income for tax purposes. Interest that a savings account earns is taxable. Says Kadam: “If for some reasons you forget to mention the interest earned in such an account in your income earned for tax purposes, and the tax authority finds that out, it will bring unnecessary complications in your financial life.”
Since the period of inactivity varies between banks, it’s possible that any account you may not have used for a few months has actually become inactive or dormant by now. At this stage, if you would want to use them, you will face several restrictions. You won’t be able to use a debit card, you can’t request for a cheque book or change your mailing address.
So if you don’t intend to use more than one or two accounts, close them and invest the funds in other investment avenues which give better returns. Be richer this new year by closing those dormant accounts.
bindisha.s@livemint.com
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First Published: Tue, Jan 04 2011. 09 17 PM IST