Idle Accounts

There can be many reasons why your account is idle for some time. Job changes, transfers, relocation on foreign assignments, sickness, death, accidents etc. Now a days a new dimension is added. Most of the person now a days hold multiple bank accounts over the time. Each bank's netbanking has different login/password rules. Add to this many more login/passwords now a days that of including emails, LIC, mutual funds, subscriptions, phone accounts - only to name a few. Also some banks have two passwords, some force you to change the password in a while. The end results is that a person loses track of some of his/her bank account. May be ATM card is misplaced or password could not be recovered.

Inactive Account

If you don't use your bank account for some period then banks label it as “inactive” account. It can happen because of no activity in your account for some time typically around 1 year. This varies from bank to bank and is not mandated by RBI. This is just to safeguard bank's customers so that no fraudulent activity takes place in one's account just because one has gone abroad to a foreign country or has been transferred to another place so lost touch with one's bank account.

Once your account is declared inactive, certain limitations are placed on the customer account - for example cheque book may not be issued. To come out of inactive accounts one needs to typically carry out ATM/cheque transaction. However rules vary and you should contact bank customer care department to know about the actual procedures.

Dormant Bank Account

Only recently the dormant account period was 6 months and in 2009 RBI mandated that Dormant period should now be extended to 2 years( see this rbi notification). That means in case of lack of any activity in your account from your side your account will first turn into inactive and subsequently into a dormant one. Even more restrictions apply in dormant bank account. You can do absolutely no transactions in your dormant account.

To make it active you( and all other holders) must now visit bank with all your proofs(id proof, address proof etc). Also KYC norms will be enforced, so don't forget to carry your PAN Card.

What transactions are ignored/considered for making account dormant?

Ignored

• Savings account interest credit
• Banking errors/corrections
• Penalty on your account (eg., not maintaining AQB)
• Other fixed annual charges like demat charges deduction
• Any other transaction initiated by bank in your account

Considered

• Any transaction initiated by any person in your account( credit/debit, cheque book charges etc)
• Fixed deposit interest credit in your account( as per RBI notifications- 18 Feb 2009 & 22 May 2009). It'd be better to have a FD of 5 years and get interest added into your account regularly to escape from dormant account penalty

What you lose when account becomes dormant

• Keep in mind rules keep changing, previously no interest was paid on the account balance once your account was declared dormant, currently yes, your all interest gets added but savings account interest rate is at reduced rate
• Banks can charge you to make your account active now. As per RBI 2009 circular:

  (ix) There should not be any charge for activation of inoperative account.

  It's clear that there is no "must" but only "should" advisory is there which is not compulsory for banks to follow.
• Your post dated cheques(if you've given those while taking any loans) bounce affecting your credit history.
• All credits like dividends from stocks, mutual fund may not be credited to your account
• Your ATM/Debit cards will be cancelled and you'll not be able to use them.
• If you are away (for example in USA) or very sick/meet an accident, then all your funds in the account will be locked up and you'll not be able to use them.
• In case your account was below AQB when it became dormant, the bank will continue to debit charges for non-maintaining of AQB every quarter, finally leading to closure of your account without your notice, if your were not reachable

When to make regular transactions?

Previously it was 6 months of inactivity that'd make your account dormant or inoperative. Currently it's different. It can change at any time. So better do one transaction every 4 months.