What is an Inactive or Dormant Bank Account? | Bajaj Finserv (2024)

An inactive or dormant account refers to a bank account that has had no transactions initiated by the account holder for an extended period. In most cases, banks charge certain fees or restrict the usage of the account. These can include inactive or dormant account fees or monthly maintenance fees. Banks classify accounts as inactive or dormant to decrease the risk of fraud.

Let us now understand the meaning of a dormant account and the differences between inactive and dormant accounts.

What is an inactive savings account

An inactive account is one that shows minimal activities, such as deposits, withdrawals, or other transactions, for a specified period. Investors may sometimes choose to keep their funds in inactive savings accounts for the safety of savings in times of market volatility and to preserve their capital. However, this may be unviable in the long term due to low interest rates, and you miss out on the chance to invest the same money in other lucrative options, such asfixed deposits.

What is a dormant savings account

A dormant savings account is an idle account that was designated as dormant due to inactivity for a prolonged duration. When an account becomes dormant, banks often attempt to contact the account holder to notify them and verify their intentions. If the account holder does not respond or cannot be reached, the account may be subject to additional fees or even escheatment, where the funds get turned over to the state.

Difference between inactive and dormant accounts

Inactive and dormant accounts differ in crucial aspects, such as the duration of inactivity, associated fees, and banking regulations.
The following table provides a detailed comparison and differences between an inactive and dormant bank account, providing clarity to account holders navigating their financial management.

What happens to an inactive savings account

Inactive savings accounts prompt financial institutions to undertake measures to protect customers’ assets and ensure regulatory compliance. These measures serve to inform account holders of their inactive status. Below are key points detailing the outcome of an inactive savings account:

• Accumulates interest but may incur fees or penalties
• Requires account holder to initiate activity for reactivation
• Commonly prompted by notifications from banks
• Failure to reactivate may lead to additional restrictions
• Continued inactivity may result in the account being flagged as dormant

How to reactivate an inactive account

The first step is understanding the inactive vs. dormant account comparison. Next, you can reactivate an inactive savings account by making a withdrawal or deposit transaction. To reactivate your account, contact your home branch and provide a written request for reactivation of your account. Your bank may ask you for new KYC documentation, including identity proof, address proof and a recent photograph. Banks typically do not charge an extra fee for reactivating the inactive account.

How to reactivate a dormant account

Reactivating a dormant savings account involves a series of actions to restore the account to active status and regain access to its operations. The steps are as follows:

• You may reactivate your account by visiting your bank branch.
• Submit an application along with the passbook of your savings account and your KYC documents showing identity and address proof.
• You may also have to provide a letter to the bank stating the reasons for the inactivity of your account in the past. Common reasons include changes in financial priorities, relocation or travel, or unawareness of account existence, especially in the case of inherited accounts.
• Upon submission, the bank initiates the reactivation process.
• Processing time varies, typically ranging from a few hours to a few days, depending on the internal procedures of the bank.

Once your account is restored to its active status, you may have to keep track of your activities and make one transaction at least every few months to prevent your account from becoming dormant again.

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Conclusion

There are several differences between inactive and dormant accounts. While inactive accounts can be reactivated quickly, reactivating a dormant account involves several steps and an extensive procedure. You must also know the meaning of a dormant account to avoid confusing it with an inactive account. This will help you reactivate the account swiftly without wasting time, effort, and resources.

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