Differences between inactive and dormant accounts

Imagine you are checking your bank account and stumble upon an account you have not used in a while. You wonder, "Is it inactive or dormant?" These terms are often used interchangeably, but they represent different states of an account. Understanding the differences between inactive and dormant accounts is crucial, especially if you want to avoid potential fees or complications down the line.

Defining inactive and dormant accounts

An inactive account is one that has experienced no transactions initiated by you for a specific period, typically 12 months. This means you have not made any deposits, withdrawals or other financial activities via that account during this timeframe.

Despite the lack of activity, an inactive account remains open and accessible. Some banks might also consider inward deposits (like salary credits) as valid activity to avoid classifying the account as inactive.

In contrast, a dormant account is one which has not seen any transactions for a period of 24 months or more. Once an account reaches the dormant status, banks may impose additional restrictions or limitations on it, making it more challenging to access or manage the funds.

Here is a detailed look at the difference between inactive and dormant Savings Accounts.

What is the difference between inactive and dormant accounts?

Aspect	Inactive accounts	Dormant accounts
Account status and implications	They may be subject to maintenance or other fees charged by the bank. These fees are designed to cover the administrative costs associated with maintaining the account, even though it is not generating significant activity.	Banks may take additional measures, such as freezing the account funds, limiting access to the account, or requiring specific documentation and procedures for reactivation.
Interest accrual and fees	Interest may still accrue as per the account's terms and conditions. However, maintenance or other fees may be deducted from the account balance.	Interest accrual may cease altogether. Additionally, banks may impose additional fees specific to dormant accounts or charge reactivation fees if you wish to regain access to the funds.
Unclaimed funds	There is no mention of the funds being transferred or considered unclaimed. The focus is on maintenance or other fees being charged by the bank.	For dormant accounts that remain inactive for an extended period (the timeframe varies by jurisdiction), banks may be legally required to transfer the funds to the Depositor Education and Awareness Fund maintained by the Reserve Bank of India.
Reactivation process	To reactivate, you typically need to initiate a transaction, such as making a deposit or withdrawal, or contact your bank directly to express your intention to continue using the account.	The reactivation process is a little more complex. For example, to reactivate a dormant Savings Account at Axis Bank, you need to submit the application form, along with your KYC details.

What happens to an inactive Savings Account?

If your Savings Account is left unused for a specified duration, generally around 12 months, it will be categorised as inactive. During this period, you may lose access to services such as online banking and the ability to request new debit cards. The account will be considered dormant if there are no transactions for an even longer time, typically for period of 24 months or more.

Banks will make an effort to inform you before this situation occurs. If they cannot contact you, the money in the dormant account could be turned over to the Depositor Education and Awareness Fund maintained by the RBI.

How to reactivate an inactive account

To reactivate an inactive bank Savings Account, follow these steps:

Step 1: Go to the branch where your account is maintained.
Step 2: Inform the bank staff that you wish to reactivate your account. They will provide you with a reactivation form.
Step 3: Complete the form and update your Know Your Customer (KYC) details. This usually involves submitting a copy of your Aadhaar card, PAN card, or other valid identification and address proof.
Step 4: To reactivate your account, you may need to conduct a small transaction, such as a deposit or withdrawal.
Step 5: Your bank will review your request, which may take a few hours. Once completed, your account will be reactivated.

How to reactivate a dormant account

To reactivate your dormant bank account, you can follow these steps:

Step 1: Head to the branch where your account is registered.
Step 2: Either complete a reactivation form or write a letter requesting the reactivation. Be sure to include your account number and relevant personal information.
Step 3: Bring along valid identification such as your Aadhaar card, PAN card, or passport, as well as proof of your address.
Step 4: If your KYC (Know Your Customer) information is not current, make sure to update it.
Step 5: Perform a small transaction, like making a deposit or withdrawal, to demonstrate account activity.
Step 6: The bank will handle your request, which may take a few days to complete.

Also Read: How to reactivate an inactive or dormant Savings Account

Conclusion

Maintaining an active bank account is essential for smooth management of your funds. By understanding the difference between inactive and dormant accounts, you can take proactive steps to prevent your account from falling into dormancy and potentially facing restrictions, fees, or even the loss of funds.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.