Have Multiple Bank Accounts…? How does It Affect You and How to Come Out of That Mess?

Earned your first salary? Deposit it in the bank.

Need a loan? Go to the bank.

Storing your valuables? The bank is there for you.

Banks have become synonymous with money in the sense that the average layman depends on the bank for all his money-related needs.

The common man rarely ventures into alternatives other than banking products. One reason for this is that banks provide a simple and easy way to deal with your finances. With that said, there are some glaring issues that need to be addressed. Given the easy set it and forget it nature of banking products there is a high chance of going overboard with it.

A Case in Point

Naveen is an IT professional working in a high profile tech firm. He earns a fat paycheck. He has invested his money in multiple bank accounts and fixed deposits. Naveen wants to diversify his financial portfolio and has assigned a different purpose for each account.

Naveen is married and has two kids to take care of. His wife is a homemaker. Naveen does not share details of his financial portfolio with his wife as he thinks she won’t understand. Naveen is a risk-averse individual and wants to play it safe by restricting his portfolio to banking products.

All of his accounts and FDs are in his name with his wife being the nominee. Naveen spends most of his time in office and rarely has time to keep track of all his FDs.

Now let us list the consequences he and his family have to face with this setup.

• Naveen has to renew each of his FDs in time or he will get no interest on them any further, and considering the huge number of FDs he has is a complicated process for which he doesn’t have time.
• He has to maintain a minimum balance in all his accounts, which if he fails to do, he will end with penalties.
• The more minimum balances he has to maintain, the more he loses out on investing that amount in mutual funds and FDs.
• He also has to keep track of his recurring deposits.
• Also, he has to update his passbooks, keep track of his cheques, and update his net banking passwords regularly.
• He has to deal with multiple debit cards and has to remember their different PINs.
• He has to go to each bank every year to get a TDS certificate and do the paperwork to keep track of his taxes.
• If he doesn’t keep track of or use all of his accounts, there is a risk of the bank making his account dormant.
• He has to pay service charges for using all the debit cards and bank ATMs he uses.
• If he is using multiple credit cards, he has the hassle of maintaining a credit score in each one of them, which can adversely affect his ability to secure loans.
• The real kicker will come when Naveen suddenly passes away in an accident or due to health complications. His family would then have to run helter-skelter filling forms and doing the paperwork to legally claim of all his accounts and FDs.

The Sad Reality

Many individuals keep creating account after account, and while they may be using just one or two accounts for all their purposes, the rest of them go dormant. These accounts don’t see any activity for years together.

1. Usually, this is because of their hectic lifestyle that gives little time for them to maintain all these accounts. This ends up in mangled up finances and plenty of maintenance that one hardly can sustain.
2. Transmission is the biggest issue that will nag your family after your death. You definitely don’t want your spouse or your children to run pillar to post filling forms to claim all your accounts and FDs.
3. If you are in a government job and get transferred to different cities after every few years, you’ll have to keep shifting your bank branches. That would take a lot of time and effort from your side.
4. Some people just leave the accounts created in their previous city of residence unclosed. These accounts become dormant. They forget about these dormant accounts. These dormant accounts stay there without any life or activity.
5. Another common trend is investing in many small amount FDs to save TDS, but there is little awareness that legally they will still have to pay tax on the interest part. Too many FDs and accounts is a hassle best avoided.

The point to note here is that the more FDs and Accounts you create, the more cluttered and messy your finance management becomes.

A Checklist for Clutter Free Banking

• List down the number of bank accounts and FDs you have.
• Check if you have any dormant accounts and start closing them or transferring their savings (if they are of the same bank) to one single account.
• Gradually start grouping the FDs that mature in close proximity to each other and merging them into one single FD.
• For example, if you have 20 FDs and 4 of them are maturing within a time period of four months, you can make a single FD out of them. This way you will also save time and effort, and end up with fewer FDs.
• Keep one joint account for you and your spouse from where you can manage your investments and common expenses, as the account remains accessible to both of you.
• If required you can also create one personal account each for you and your spouse if you both are earning, with your salaries going into your respective accounts.
• You can reserve your personal accounts for personal expenses.

Conclusion

As all your money is monitored under one PAN card, it really doesn’t make any sense to have multiple accounts as the government is only concerned with the amount lying under your PAN.

Just in case you didn’t know, if you don’t fall under the tax bracket, you can always submit form 15G or 15H to save on your TDS.

That’s all there is to make your banking clutter-free. Apply these working strategies to your financial life. You will not only save your precious time and effort but also gain a foothold from where you can achieve greater success.