The Allure of Many Accounts
It’s a common scenario for young professionals. You start your first job, and the company opens a salary account for you. Soon after, a digital bank offers a zero-balance account with great cashback, so you get that too. Then you decide to open a joint
account with a partner or a separate one just for investing. Before you know it, you're juggling three, four, or even more accounts. The reasons are often practical: separating your salary from your spending money, dedicating an account to specific savings goals, or taking advantage of different bank-specific offers. This strategy, known as bucketing, can be a powerful tool for budgeting and financial discipline, helping you mentally earmark funds for different purposes. It also provides a safety net; if one bank's app or services are down, you have backups.
The Hidden Costs You Can't Ignore
While the benefits are clear, the drawbacks often creep up unexpectedly. The most significant is the Minimum Average Balance (MAB) requirement. Many savings accounts, especially at private banks, require you to maintain a certain average balance—ranging from ₹1,000 to over ₹25,000. Failing to do so invites penalty charges that can eat into your savings. While the RBI states these charges must be reasonable and proportional to the shortfall, they can add up. Beyond MAB, there are other costs: annual debit card fees, SMS alert charges, and other service fees for each account you hold. Collectively, these small charges can become a significant drain, and money locked up just to meet MAB requirements across several accounts is money that isn't being invested or earning better returns elsewhere.
Dormancy and Compliance Headaches
An unused bank account is not just idle; it’s a potential liability. As per RBI directives, if an account sees no customer-initiated transactions for two years, it becomes ‘inoperative’ or ‘dormant’. Reactivating a dormant account can be a cumbersome process requiring a branch visit and fresh KYC documentation. Furthermore, managing the tax implications can be tricky. All interest earned across all your savings accounts must be clubbed together and reported in your Income Tax Return under 'Income from Other Sources'. While a deduction up to ₹10,000 on this interest is available under Section 80TTA (for those not in the new tax regime), many people mistakenly believe the limit applies per account, which is incorrect. Forgetting to report interest from a less-used account can lead to issues with the tax department.
A Smarter Strategy: The Three-Account Rule
For most young individuals, a three-account system offers a good balance of organisation and simplicity. First, a primary account, ideally your salary account, which often has MAB waivers. Use this for receiving your salary and paying for fixed, high-value expenses like rent, EMIs, and utility bills. Second, a dedicated savings and investment account. Set up an automatic transfer from your primary account to this one right after your salary is credited. This ‘pay yourself first’ approach ensures your savings goals are prioritised. This account should be used only for long-term savings and investments, not daily spending. Third, a daily expenses account. This could be a digital-first or zero-balance account linked to your UPI apps for all your discretionary spending like food, shopping, and entertainment. Transfer a fixed weekly or monthly budget to this account to keep your spending in check.
How to Declutter and Close Unwanted Accounts
If you've accumulated more accounts than you need, it's wise to close the inactive ones. Merely emptying an account is not enough; you must formally close it. The process typically requires a visit to your home branch. Before you go, ensure you have transferred all remaining funds, updated any linked auto-debits (like SIPs or insurance premiums), and unlinked the account from all UPI apps. You'll need to fill out an account closure form and surrender your passbook, chequebook, and debit card. Most banks in India still require a physical visit for this process, though some digital banks may allow online closures. Closing an account ensures you won't be surprised by piled-up MAB charges or other fees on an account you thought was defunct.
