Managing your finances is a personal journey that evolves as per your requirements and objectives. You might already have a Savings Account, but wonder if you can open another one for a specific goal or to be better organised. In India, opening multiple Savings Accounts is possible and even sometimes recommended to simplify financial management. In this article, we will look at whether you can open a new account if you already have an active account, the importance of account activity, and the concept of a dormant account.
Understanding the Basics of Bank Accounts
Before we get into the specifics, let’s understand an active account. An active bank account is one that has been used recently for any transaction, such as deposits, withdrawals, or bill payments. In contrast, depending on the bank's policy, a dormant account has not had any activity for a specific time, usually between six months and two years, depending upon the respective bank.
Opening a New Savings Account While Maintaining an Active One
If you already have an active
Savings Account, you can still open another one with the same or another bank. Banks generally do not prohibit customers from having multiple accounts. However, several factors come into play, such as:
1. KYC Compliance: When you open a new account, you must comply with Know Your Customer (KYC) norms. To do this, you must submit identification documents, proof of address, and a recent photograph. The KYC process ensures that the bank verifies the customer's identity to prevent fraud.
2. Minimum Balance Requirements: Different banks and account types have different minimum balance requirements. Maintain these Minimum Account Balances (MABs) in all your accounts to avoid penalties.
3. Purpose of Multiple Accounts: It is important to understand why you need multiple accounts. Some individuals open separate accounts for budgeting purposes— to set aside funds for specific goals—while others may want to take advantage of different interest rates or bank offers.
4. Types of Accounts: When you open an account, consider the category most beneficial for you. For example, leading banks like ICICI Bank have different types of Savings Accounts catering to the distinctive needs of individuals; these accounts are feature-packed with benefits such as pre-approved loans, attractive interest rates, seamless online and mobile banking, and minimum documentation requirements.
Understanding the Concept of Dormant Accounts
A dormant account in India has had no transactions for a specific period, usually 12 months, for Savings Accounts. However, the specific condition to declare an account dormant depends on the respective banks. If an account is classified as dormant, it becomes inactive. To reactivate the dormant account or close the account, the procedures involved and other key components are as follows:
1. Procedure for Re-Activation: If you have a dormant account and desire to reactivate it, you will generally have to visit the bank branch in person. Valid identification and the necessary documents to verify your identity will be required.
2. Maintaining Activity: A dormant account can only be avoided if at least one transaction is made within a year through the account. This could be as simple as making a small deposit, withdrawing money, or even using a debit card to make some purchases.
3. Dormant Account Closure: Another alternative that banks consider is closing dormant accounts after a certain period. Most often, the banks notify the user beforehand. To avoid such scenarios, it is wise to keep good track of your accounts and ensure their active status.
Pros and Cons of Multiple Bank Accounts
While opening several accounts has its advantages, it also has its downsides. Here are the key considerations:
Pros:
- Improved Financial Management: With several accounts, you can divide your money according to its purpose, such as savings, paying bills, or even spending.
- Access to Multiple Banking Features: Different banks provide different features and benefits. You may choose to have multiple Savings Accounts to take advantage of various benefits offered by different banks.
- Enhanced Security: Keeping funds in different accounts can provide an additional layer of security against fraud or theft.
Cons:
- Increased Complexity: Managing multiple accounts may become cumbersome, and the account holders may need help managing balances and transactions.
- Fees and Penalties: Some banks charge to maintain lower account balances. To avoid charges, you should know the fee structure for each of your accounts.
Tax Implications for Multiple Savings Accounts
While
Savings Account interest rate is tax-free up to Rs. 10,000 for individual taxpayers under Section 80TTA, any interest beyond this limit is taxable. Multiple accounts might increase your total interest income, so keeping a record and declaring all accounts during tax filings is advisable to avoid legal issues.
Some people open multiple accounts to receive greater tax-free interest across different banks. However, the income tax department mandates that all interest income be declared, regardless of which bank holds the account.
Final Words
Opening a new bank account while holding an active one is not only possible but also a common practice among individuals in India. With the proper documentation and an understanding of your bank’s policies, you can easily manage multiple accounts to cater to your financial needs.
Additionally, it’s essential to be aware of dormant accounts and take proactive measures to keep them active. Whether you're saving for a future goal or managing your daily finances, having multiple accounts can give you flexibility and greater control over your finances.
