The bother with having too many financial institution accounts

Around a month again, I used to be serving to an in depth buddy file his father’s earnings tax return. During the method of placing collectively the data required to file the return, we realized that his father had a checking account which he had probably forgotten about.

In this gentleman’s type 26AS, I got here throughout an entry the place a financial institution had deducted tax at supply. Form 26AS supplies the small print of all of the tax deducted at supply in the course of the 12 months. Now the tax deducted at supply was a considerable quantity and this advised me that the deposit within the financial institution should have run into quite a lot of lakhs of rupees.My buddy shared this info together with his father. The latter—who prides himself in the best way he manages his funds—completely refused to imagine this. He mentioned that this was merely not doable. So, for a couple of days nothing occurred. Then on being nudged by my buddy’s mom, his father made a go to to the financial institution and was advised—to his nice shock—that sure he had deposits with them.

My buddy’s father is about to the touch 75. The undeniable fact that he forgot a couple of checking account was extra a operate of getting one too many financial institution accounts—round 9 on the final depend and throughout totally different cities—than his age.

Men like him grew up in an period when there have been barely any ATMs going round. ATMs began spreading across the size and the breadth of the nation solely within the early 2000s. So, cash couldn’t be withdrawn from a financial institution 24/7.

Further, totally different banks had totally different instances of operation. Hence, by having a number of financial institution accounts, folks simply tried to make sure that they’d entry to cash at totally different factors of time in the course of the day.

Also, there was a time when banks used to fail frequently. As economist Amol Agarwal wrote in a 2018 column within the Mint: “Between 1935 and 1947, practically 900 banks failed adopted by 665 banks within the interval from 1947 to nationalization in 1969.” My buddy’s father began working solely after 1969. And so did my father. Nonetheless, their fathers had grown up in an period when banks failed frequently and so they had taught their sons that it made sense to have their financial savings unfold throughout many financial institution accounts, in order that even when one in every of them fails, it didn’t impression their total financial savings.

The bother is that we at the moment are in 2023 and what was true earlier than 1969 isn’t true anymore. Yes, banks nonetheless fail, however nowhere as continuously as was the case prior to now. Also, usually, the depositors’ cash is sort of all the time secure, with the banking regulator—the Reserve Bank of India— both arranging a rescue or guaranteeing that the financial institution is merged with one other greater financial institution.

Which is why it is senseless to have greater than three or 4 financial institution accounts. Having extra financial institution accounts comes at a value. First, as was the case with my buddy’s father, folks neglect. I’ve had a number of such experiences over time with my family in the course of the technique of serving to them file their tax returns.

Second, a minimal stability must be maintained in each checking account. So, the larger the variety of financial institution accounts, the larger the minimal stability that must be maintained. And if that isn’t accomplished, fines have to be paid.

In reality, in a latest reply to a query raised within the Rajya Sabha, the federal government knowledgeable that since 2018 the general public sector banks and main non-public banks (Axis Bank, HDFC Bank, IndusInd Bank, ICICI Bank and IDBI Bank) had collected ₹21,044 crore as a cost for non-maintenance of minimal stability. Of course, not all of this should have been due to one too many financial institution accounts.

Third, god forbid, if something occurs to a father or mother, the youngsters have to run round first establishing with the banks that they’re actually who they declare to be after which closing all these accounts. Believe me this isn’t a nice expertise particularly at a degree of time when there’s a lot grief.

Fourth, it’s your hard-earned cash in spite of everything and it is advisable to at the least know the place it’s parked.

To conclude, due to growing digitization of the tax-filing course of one can now know precisely in regards to the banks the place the cash has been deposited. If you don’t, try your Form 26AS and shut down a couple of financial institution accounts you probably have one too many.

 Vivek Kaul is the creator Bad Money.