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It is easy to pile up multiple bank accounts, necessitated when you change jobs, chase higher interest on deposits in different banks, or even set up joint accounts. However, maintaining all these accounts can get cumbersome. The World Bank, in its latest Global Findex report, stated that one-third of Indian bank account holders had an inactive account in 2021. About half of the respondents with an inactive account cited no need for this account as one of the primary reasons for not using it.

Experts suggest that 2-3 bank savings accounts are sufficient for an individual and the rest should be closed. Closing a bank account is fairly easy if you don’t have any auto-debit mandates linked to the account. You just have to fill the closure form after downloading it from the bank website and submit it with other documents (see table) at the nearest branch. Instruction to move all the auto-debit mandates, including loan EMIs, systematic investment plans (SIPs), bills on payment platforms and on online merchants, among others, is provided in the account closure form. Banks typically don’t charge a closure fee for savings accounts closed after 12 months from the opening date.

Delinking the account

Even if you don’t have auto-debit mandates, do check whether or not you have registered that account with an MF house, insurance company, income tax department or Employee Provident Fund Organisation (EPFO). It is important that you delink any such account and update a new bank account with the respective institutions.

 

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Mutual fund: On redemption, the money first goes into the AMC’s account, which then gets transferred to the investor’s account. “If the registered bank account is closed, redemption payment will be kept on hold and the client has to submit the change of bank request in order to credit the amount into the new bank account," said Saugata Chaterjee, chief business officer, Nippon India Mutual Fund.

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Investors can place the request through four routes —MF Central, Registrar and transfer agents like KFintech and CAMS, MF websites or physically through RTA or MF offices.

The fastest way to do this is through MF Central, as per Rushabh Desai, founder of Rupee With Rushabh Investment Services. “Even if an investor has MF distributors and also invests directly through an online platform, they can update the bank account across all MFs on a single platform at the click of a button." MF Central asks for a coloured scan of the cheque of both the current as well as new bank account.

Insurance: A bank account is registered during policy sign-up of traditional life insurance policies and unit-linked insurance plans (ULIPs). For health, vehicle and term insurance policies, most insurers don’t ask for a bank account at the time of signing up.

“Claims of vehicle insurance are mostly paid directly to the repair shops," said Kapil Mehta, co-founder, SecureNow. Similarly, for health and term plans, insurers ask for bank details when the claim is filed.

In traditional life insurance plans, bonuses and maturity proceeds are directly transferred to the bank account registered at the time of buying the policy. “It is advisable to update bank details for all life insurance policies," said Atri Chakraborty, COO, IndiaFirst Life Insurance Co.

When the policyholder closes the registered bank account without delinking, the refund will be credited back to the insurer and will get processed via cheque. The payout gets delayed by a few days in such a case, according to Max Life Insurance.

Tax refund: Not de-linking the bank account will get you a notice from the IT department if a tax refund is due. Taxpayers must change the bank account details on the IT portal and then raise a refund request again, says Sudhakar Sethuraman, Partner, Deloitte India.

FD, RD, credit card: Savings bank account, fixed deposit (FD) and recurring deposit (RD) opened in the same bank are not linked. Therefore, closing the bank account will not impact either. However, for RDs, you will have to provide an alternative account from where regular debits can be made. For FDs, the bank will pay maturity proceeds through a cheque if the savings account is closed. Similarly, any credit card or demat account linked to the savings account need not be closed.

“There is no immediate connection between closing a credit card and terminating a bank account. Cancelling the card should be a standalone decision depending on the benefits of the card," said Raj Khosla founder and MD, MyMoneyMantra.com.

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