What is the difference between inactive and dormant bank accounts? How to restart them?

Have you ever wondered what happens to a bank account that you no longer use? Whether it's an account you've forgotten about or one you simply don't need anymore, failing to close these savings or current bank accounts can result in them being classified as either inactive or dormant. But what do these terms mean, and how do they differ from each other?

Inactive bank accounts

When one does not make any transaction with your savings or current bank account for more than 12 months, it is labeled as an inactive account. This means that if no deposits, withdrawals or other banking activities take place within this timeframe, the account is considered inactive.

Dormant bank accounts

On the other hand, if there are no transactions conducted through a savings or current account for a period exceeding 24 months, it is deemed dormant. A dormant bank account signifies a prolonged period of inactivity, requiring specific procedures to reactivate it.

Implications of inactivity or dormancy in bank accounts

Once an account becomes inactive or dormant, certain consequences follow. Transactions that are automatically generated by the banking system, such as interest credits, will no longer apply to these accounts. However, if any fixed deposit (FD) earnings or dividends from shares are credited to your savings account, these will be considered as customer-induced transactions. Consequently, the savings account will remain operational, provided that the FD funds or dividends are transferred to it.

Banking limitations and account restrictions

In the case of inactive accounts, services such as internet banking, requesting debit cards or checkbooks and modifying contact information like phone numbers, addresses or email addresses become unavailable. The limitations imposed on dormant accounts are even more extensive, as they also restrict ATM transactions, phone banking and internet banking usage. In essence, both inactive and dormant accounts limit your access to various banking services and functionalities.

Activating an inactive or dormant savings account

If you wish to activate your inactive savings account, you must engage in banking activities such as bill payments, cash deposits or withdrawals or fund transfers. Some banks offer an internet banking facility specifically designed to reactivate inactive savings accounts. Alternatively, you can reach out to the bank's branch or customer care to initiate the account activation process.

In the case of dormant savings accounts, a formal request along with proof of identity must be submitted to reactivate the account. It is essential to include information about your active, inactive and dormant current and savings accounts when submitting your income tax return. Ensure that the income tax return provides details of all bank accounts held in India during the preceding year, except for those that have remained inactive for more than three years.