The trouble with having too many bank accounts

By having multiple bank accounts, people just tried to ensure that they had access to money at different points of time during the day. (Photo: Mint)
By having multiple bank accounts, people just tried to ensure that they had access to money at different points of time during the day. (Photo: Mint)


  • A depositors’ money is almost always safe. So, it makes no sense to have many accounts now

Around a month back, I was helping a close friend file his father’s income tax return. During the process of putting together the information required to file the return, we realized that his father had a bank account which he had possibly forgotten about.

In this gentleman’s form 26AS, I came across an entry where a bank had deducted tax at source. Form 26AS provides the details of all the tax deducted at source during the year. Now the tax deducted at source was a substantial amount and this told me that the deposit in the bank must have run into more than a few lakhs of rupees.My friend shared this information with his father. The latter—who prides himself in the way he manages his finances—absolutely refused to believe this. He said that this was simply not possible. So, for a few days nothing happened. Then on being nudged by my friend’s mother, his father made a visit to the bank and was told—to his great surprise—that yes he had deposits with them.

My friend’s father is about to touch 75. The fact that he forgot about a bank account was more a function of having one too many bank accounts—around nine on the last count and across different cities—than his age.

Men like him grew up in an era when there were barely any ATMs going around. ATMs started spreading around the length and the breadth of the country only in the early 2000s. So, money could not be withdrawn from a bank 24/7.

Further, different banks had different times of operation. Hence, by having multiple bank accounts, people just tried to ensure that they had access to money at different points of time during the day.

Also, there was a time when banks used to fail regularly. As economist Amol Agarwal wrote in a 2018 column in the Mint: “Between 1935 and 1947, nearly 900 banks failed followed by 665 banks in the period from 1947 to nationalization in 1969." My friend’s father started working only after 1969. And so did my father. Nonetheless, their fathers had grown up in an era when banks failed regularly and they had taught their sons that it made sense to have their savings spread across many bank accounts, so that even if one of them fails, it did not impact their overall savings.

The trouble is that we are now in 2023 and what was true before 1969 isn’t true anymore. Yes, banks still fail, but nowhere as frequently as was the case in the past. Also, typically, the depositors’ money is almost always safe, with the banking regulator—the Reserve Bank of India— either arranging a rescue or ensuring that the bank is merged with another bigger bank.

Which is why it makes no sense to have more than three or four bank accounts. Having more bank accounts comes at a cost. First, as was the case with my friend’s father, people forget. I have had multiple such experiences over the years with my relatives during the process of helping them file their tax returns.

Second, a minimum balance needs to be maintained in every bank account. So, the greater the number of bank accounts, the greater the minimum balance that needs to be maintained. And if that is not done, fines need to be paid.

In fact, in a recent answer to a question raised in the Rajya Sabha, the government informed that since 2018 the public sector banks and major private banks (Axis Bank, HDFC Bank, IndusInd Bank, ICICI Bank and IDBI Bank) had collected 21,044 crore as a charge for non-maintenance of minimum balance. Of course, not all of this must have been because of one too many bank accounts.

Third, god forbid, if anything happens to a parent, the children need to run around first establishing with the banks that they are really who they claim to be and then closing all these accounts. Believe me this is not a pleasant experience especially at a point of time when there is so much grief.

Fourth, it is your hard earned money after all and you need to at least know where it is parked.

To conclude, thanks to increasing digitization of the tax-filing process one can now know exactly about the banks where the money has been deposited. If you don’t, check out your Form 26AS and shut down a few bank accounts if you have one too many.

 Vivek Kaul is the author Bad Money.

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