How to Close A Savings Bank Account Appropriately?

The Buyt Desk

Closing a savings bank account is an easy task when there is no auto-debit authorization linked to the account. There are a few things to do before closing a bank account.

In 2021, a study revealed that one-third of bank accounts in Indian banks are inactive. It is quite normal to have multiple bank accounts and to open a new account when an employer changes. People also open new bank accounts with banks offering higher rates of interest on account deposits. Similarly, people also tend to open accounts in banks offering lower loan interest rates when they opt for loans. And a few open new accounts to set up joint accounts. Because of various reasons, few tend to have multiple bank accounts of which the same accounts are non-functional. Maintaining many such accounts is a tedious job. So it is better to close the non-functioning bank accounts.

Are having multiple savings bank accounts helpful?

Financial experts advise not to have more than 3 savings bank accounts until necessary. Most of the purposes can be covered in just 2 or 3 bank accounts. So it is better to close the rest of the accounts. Keep a minimum number of accounts that are sufficient for your day-to-day needs. Having and maintaining more can be cumbersome and may not be profitable.

How to close your savings bank account?

Closing a bank account is not a difficult task but an easy one provided no auto debit is linked with it. You need to download the account closure form from the bank website and fill it out. Or even collect the account closure form from the bank and fill it out. Along with other required identification documents, submit the filled account closure form at the nearest branch of the bank. Also, talk to the branch manager and instruct them to move all auto debit linked mandates. These mandates can be SIPs, EMIs, utility bill payments and other auto debit platforms. All these details also need to be furnished in closure form. If you are closing your savings bank account after one year of opening the account, no closure fees are charged. Below are a few things you need to do before closing the account.

Delinking the account – Check for the auto-debit mandates. Check if you have registered the same account with any insurance company, MF (Mutual Fund) house, EPF (Employee Provident Fund) or Income Tax (IT) Department. You have to delink the account from all such platforms and provide other account details so that your money is not stuck. Update your new account details will all organizations like EPF, IT, MF etc.

Why is delinking necessary?

Mutual fund – On redemption of MF, the funds directly go into the Asset Management Company’s (AMC) account. From AMC’s account money is then transferred to the investor’s account. And if you fail to delink the account you are closing, your money will be transferred to the closed account and then to get money from here to your new account you have to do a lot of paperwork and work with both bank and AMC which will take a lot of time. To avoid this, you need to delink the account you are closing and update the new account details with the MF house. Redemption payment is quickly deposited in the investor’s account when the correct account details are registered with the MF house. You can delink and update the account details in four ways. This can happen either through MF Central, MF websites, Registrar and transfer agents (like KFintech and CAMS) or physically (through RTA or MF offices). Among these four, MF central is the fastest way to do it. You can delink and update the bank account across all MFs online through a single platform in just a few clicks. You need to submit an old and new account cheque leaf along with the request.

Insurance – Even the insurance maturity amount is deposited in the registered bank account. The account was registered with the insurance company while buying the policy. So, it is important to delink the savings account you are closing and update it with alternate bank account details. Update account details of all insurances you have including life, health, term and vehicle insurance. So that maturity, bonus and claim amount is not struck and directly deposited in your account. When you close the registered savings bank account without delinking, the maturity, bonus or claim amount deposited will be credited back to the insurer. And later a cheque is issued in your name as the amount has been returned to them. You have to visit them and collect the cheque and then deposit it in your account. This is time-consuming. Hence it is better to delink the account with all insurance you have before closing it.

Income Tax – When you have paid tax in excess, you will receive a tax refund. This refund amount is deposited with the account registered with the IT department. When you do not delink your savings account with the IT department before closing it, your tax refund will happen to the closed account and then it is credited back to the IT department. When a tax refund fails and is due, you will receive notice from the IT department. Now you have to update the account details and then raise a new refund request.

FD, RD, credit card – Also you have to delink the closing savings bank account with a fixed deposit (FD), recurring deposit (RD) and credit card of the same bank and update new account details. From the new account, the RD amount and credit card payment will be auto-debited. And to the new account, FD interest and maturity are credited.