Manage Money

7 Dangers of Owning Multiple Bank Accounts

Many people have multiple bank accounts nowadays, owing to one reason or another. It may be a good idea in some cases - if you are a businessman and your transactions are enormous, or if you have need-based accounts. However, there are certain cons of multiple bank accounts which you should consider before opening a new one.

Disadvantages of Multiple Bank Accounts

1. Service Charges

Are you aware that savings accounts are not free?  This means that you need to pay a few minimal charges for availing services such as debit cards, SMS alerts, ATM use, etc. Moreover, service charges for non-maintenance of monthly average balance alone can go up to Rs. 600 in banks like HDFC. Therefore, if you have multiple bank accounts, you will end up paying more service fees.

2. User ID and Password

If you have multiple bank accounts, then you will have to keep different user IDs and passwords for each bank's internet banking.  Imagine a situation where after every six months banks ask you to change your password for security reasons, and you have to do it for 3-4 accounts. Wouldn’t that be cumbersome for you? Even if you were to maintain a diary for jotting down the passwords or save them in a phone, is it really safe to do so? What if you lose your diary or mobile? These questions do a good job of reminding us that it is difficult to handle multiple bank accounts.

3. PIN

Holding multiple bank accounts means that you would have numerous debit cards. For each debit card, you require a different PIN. Now, imagine a situation where you lose your wallet, and you had four debit cards and two credit cards in it, which means that you are supposed to call at least four banks to block your debit cards. Even if you were to take the effort of keeping all your cards safe, It is also hard to keep track of many PINs at once. Therefore, to avoid such predicaments, it is better to not have multiple bank accounts.

4. Minimum Balance Maintenance

If you fail to maintain the average minimum balance in any of the accounts that you have, you will face penalties. The minimum balance starts from Rs.2000 and could be as high as Rs 1.5 lakh for some banks in urban areas. For others, it usually remains in the range of Rs 5,000-Rs 10,000. Hence, the more accounts you have, the more cash you would have to maintain a minimum balance in them. Let's discuss this with an instance - if you have an account each in PNB, SBI, and HDFC Bank, then you will be required to keep at least Rs 17,500 as minimum balance unless these are zero balance accounts. Your zero-balance salary accounts automatically get converted into regular savings accounts once you switch your job and get a new salary account. Then these accounts will also require minimum average balance maintenance.

5. Ineffective Use of Money

Maintaining a minimum balance in several accounts means that you lose the opportunity to use the same amount in lucrative investment instruments - FDs, mutual funds, and recurring deposits - where you could get higher returns as compared to the interest rates of savings accounts.

6. Misuse of Inactive Accounts

If you are not able to keep tabs on your accounts, you could possibly have a dormant savings account. Unscrupulous people may notice the dormancy of your account and find ways to misuse it, mainly if the savings account carries a balance. Also, you earn low-interest rates on inactive accounts.

7. Difficulty in Tax Filing

Having too many interests and income-generating accounts means that your paperwork will increase during tax filing. Gathering information and statements from multiple bank accounts at the time of filing IT returns is a cumbersome job; you may commit mistakes due to heavy paperwork, and it could cost you a considerable amount of money. However, consolidating your finances into one or two accounts can help in this regard.

To Sum Up

Eliminate savings accounts that are dormant or old, as they may lead you to ineffective use of cash and you could end up paying an enormous amount in service charges and average minimum balance to keep those accounts. Also, it is challenging to maintain multiple bank accounts, as an undesirable credit activity or irregularity in any account can hit your credit score as a whole.

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