You've been working for a few years now. You have a few jobs behind you. Along with your previous jobs, you have left behind a trail of salary accounts.
On an average you might have anywhere between 2 to 5 bank accounts by now; some of them inoperative. Considering you haven't touched some of these accounts for years now, what should you do with them?
Let's first look at possible negative consequences of having multiple bank accounts.
#1. Possible Penalties for not maintaining minimum balance
Once your salary account stops getting salary credits, within three months it reverts to being a standard savings account. This means that it's no longer a zero balance account.
If you have less than the stipulated minimum balance in such accounts, you are attracting definite penalties. Over a period of time, these penalties can mount up unless you close the account.
Action point: Close inoperative accounts if you can't maintain the minimum balance for each of them. Mounting penalties might hurt your credit score.
#2. You might be losing out on interest income
Most of you don't really have a choice when it comes to which banks to choose when opening a salary account. You probably don't even consider how much interest the bank is paying you.
Once your salary account reverts to a standard savings account on account of no salary credits, you will usually get 4% interest at most. Assuming you have maintained the minimum balance and do not attract penalties, this is probably the worst way to keep your money.
For example; you have 4 old accounts with a minimum balance requirement of Rs. 10,000 each. Each account earns 4% per annum. You will get roughly Rs. 400 per account each year if you don't add any money to it. That is Rs. 1600 total interest earned across 4 savings accounts.
Now close all the 4 old accounts and put the money in a debt mutual fund earning on an average 8-9%. While the returns vary, on a long term basis you are looking at 8% of Rs. 40,000 or at least Rs. 3200 per year interest earned. You get the point, don't you?
Action Point: Don't let your money sit idle. Close accounts you don't need and put the money to better use. Invest in equity or debt mutual funds to begin with.
#3. Security Concerns
Having multiple accounts, especially net banking enabled accounts, means remembering passwords for them all. Inoperative accounts are also more vulnerable to possible fraud or breaching attempts. Account statements can sometimes contain sensitive data and thus leave you vulnerable when you least expect it.
Action Point: Disable net-banking for dormant accounts if you don't intend to close them. Monitor all your accounts regularly for any unusual activity.
When does having multiple accounts make sense?
#1: To organize your money
You can use one account as a main operating account. Every time you shift a job, apply for a loan, or get a new account, you could set an automatic transfer to this account. Your payments, EMIs, and investments could also be linked to this main account.
You can open or maintain an existing account as a savings account where you transfer your savings and from there on to better investments according to your investment plan.
This is your layover account. Money beyond the minimum balance should not stay here for more than a month.
#2: If you have a business or are a freelancer
Sometimes it makes sense to have multiple accounts if you have a business. Businesses have separate requirements for payments and expenses. If you are a freelancer servicing multiple clients, you might want a separate account or accounts where your clients can credit your fees.
What's a good number of accounts to have?
While there is no golden rule, 2 accounts (1 primary and 1 layover/temporary) should suffice for most of your needs.
Some basic rules:
- Close unused accounts as soon as possible
- If you have to maintain multiple accounts, make sure you maintain the minimum balance in each of those accounts
- Make sure you know which accounts your regular deductions such as EMIs are linked with
- With the advent of government schemes like DBTL, remember to have a key account that is linked to your Aadhaar number as well as any gas agency accounts