A dormant account is a term used to describe a bank account that has remained inactive for an extended period. While many people might not think much about an account they rarely use, it’s important to understand what happens when an account becomes dormant, the implications of having a dormant account, and how to reactivate it if needed. In this article, we will explore what a dormant account is, how it can impact you, and the steps you can take to manage or reactivate such accounts.

What is a dormant account?

A dormant account is a bank account that has had no financial activity for a specific period, usually 12 to 24 months, depending on the bank’s policy. Financial activity typically includes transactions like deposits, withdrawals, fund transfers, or even using the account for direct debits or standing orders. If none of these activities occur within the specified timeframe, the bank may classify the account as dormant.

Once an account is labeled as dormant, it remains in the bank's records, but certain restrictions may be applied. For example, the account holder may not be able to withdraw funds or issue cheques without first reactivating the account.

Why do accounts become dormant?

There are several reasons why a bank account might become dormant:

1. Multiple accounts: Some individuals open multiple bank accounts for various purposes, such as savings, investments, or specific financial goals. Over time, they may stop using one or more of these accounts, leading to inactivity.
2. Change in financial circumstances: A change in financial circumstances, such as job loss, relocation, or a shift in banking preferences, can result in an account being left unused.
3. Neglect: Sometimes, people simply forget about an account, especially if it has a small balance or if they rarely used it in the first place.
4. Long-Term Investments: Accounts that are opened for long-term investments or specific purposes (like a fixed deposit) may not see regular transactions, leading to dormancy.

What happens when an account becomes dormant?

When a bank account becomes dormant, it remains in the bank’s system, but certain limitations are imposed. Here are some of the common consequences:

1. Restricted access: The account holder may face restrictions on transactions, such as withdrawing money, issuing cheques, or using a debit card. Online banking services linked to the account may also be limited.
2. Account fees: Some banks charge maintenance fees on dormant accounts. These fees can gradually deplete the balance, especially if the account was left with a small amount of money.
3. Interest earnings: If the account earns interest, it may continue to do so even while dormant. However, this interest might be subject to fees, and the bank may impose a lower interest rate on dormant accounts.
4. Communication from the bank: Banks typically attempt to contact the account holder before classifying an account as dormant. They may send notifications, letters, or emails to inform the account holder of the inactivity and the steps required to prevent the account from becoming dormant.
5. Reactivation process: To use a dormant account, the account holder must reactivate it by following the bank's procedures. This usually involves visiting the bank, verifying identity, and possibly completing some paperwork.

How to prevent an account from becoming dormant

Preventing your bank account from becoming dormant is relatively simple. Here are a few steps you can take:

1. Regular transactions: Ensure that you carry out at least one transaction every 6 to 12 months. This could be as simple as depositing or withdrawing a small amount, transferring funds, or using your debit card.
2. Set up direct debits: Linking your account to recurring payments, such as utility bills or subscriptions, can help maintain activity in the account.
3. Monitor your accounts: Regularly check all your bank accounts, even those you rarely use. This will help you stay on top of any changes and avoid dormancy.
4. Consolidate accounts: If you have multiple bank accounts, consider consolidating them. This reduces the number of accounts you need to manage and lowers the risk of one becoming dormant.
5. Notify the bank: If you know that you won’t be using an account for an extended period, notify your bank. They may offer advice on how to keep the account active or suggest alternatives.

Difference between inactive and dormant bank accounts

• Inactive account: An account becomes inactive when it hasn't been used for a shorter period, typically 6 months to a year. The account remains functional, but the bank monitors it more closely for security purposes.
• Dormant account: If an account remains unused beyond the inactive period, it is classified as dormant. At this stage, access to the account is significantly restricted to protect against potential fraud.

How to reactivate a dormant account

If your account has already become dormant, don’t worry—it can usually be reactivated. Here’s how:

1. Visit the bank: Most banks require you to visit a branch in person to reactivate a dormant account. Make sure to bring valid identification and any account-related documents.
2. Submit a written request: You may need to submit a written request to reactivate the account. Some banks provide forms for this purpose, while others may accept a simple letter.
3. Verify your identity: Banks will typically ask you to verify your identity to ensure that you are the rightful account holder. This is an essential security step.
4. Conduct a transaction: After reactivating the account, you will likely be required to conduct a transaction, such as a deposit or withdrawal, to make the account fully operational again.
5. Review account details: Once the account is reactivated, review the account details, including any fees or changes that may have occurred while the account was dormant. Update your contact information if necessary.

Conclusion

A dormant account may seem like a minor issue, but it’s important to understand its implications. Inactivity can lead to restricted access, account fees, and other complications. By staying proactive, you can prevent your account from becoming dormant, and if it does happen, reactivation is typically straightforward. Regularly monitoring your accounts, conducting transactions, and keeping in touch with your bank can help you avoid the inconvenience of a dormant account. Being aware of your financial accounts and maintaining their activity is a simple yet effective way to ensure that your money remains accessible and secure.

If you are looking for safe investment option, then you can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.