Before you decide whether you should have multiple bank accounts or not, remember to consider these drawbacks as well:
Maintaining minimum balance in each account
Most savings bank accounts (except BSDA) carry a minimum balance clause. The minimum balance is the basic amount of money your account should hold at all times. The minimum balance requirement can vary from Rs. 1,000 to Rs. 25,000, depending on the bank in question. Opening multiple accounts means meeting the minimum balance requirements of each. Failing to do so attracts a penalty charge as well. Therefore, if you’re convinced you should open multiple bank accounts, remember to think about the minimum balance requirements carefully.
Hassles of managing multiple accounts
Managing multiple bank accounts can become a hassle for most people. Tracking multiple bank statements, checking transaction ledgers, keeping contact information updated with all banks, and more add to your chore list. This can be time-consuming for most individuals.
In-efficient use of funds
One of the biggest drawbacks of opening multiple bank accounts is the opportunity cost payable. When you open multiple accounts, you block funds to meet the minimum balance requirements of each. Since private banks can have exorbitant high minimum requirements, a significant share of your income can go towards meeting this requirement. Hence, you will not be able to use the funds optimally. In the absence of multiple accounts, you could have invested the funds in more lucrative avenues and earned higher yields.
Problems relating to account dormancy
According to the RBI’s directives, savings and current accounts become inoperative if there is no transaction on the account for a period of two consecutive years. When the status of your account changes from active to dormant, all services linked to the account are suspended. You have to submit a written application to the bank to request reactivation which can be a lengthy and time-consuming process.
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Pros and cons of having multiple bank accounts
Pros:
- Better Financial Organisation
Using different accounts for different purposes—such as savings, expenses, investments, or emergency funds—can help you stay organised. This separation makes it easier to track spending, allocate funds, and maintain budgeting discipline.
- Increased Financial Flexibility
With multiple accounts, you can plan your finances more efficiently. For instance, keeping your savings separate from your daily expense account can reduce the temptation to overspend and ensure your long-term goals remain on track.
- Risk Distribution
Distributing funds across different banks or accounts can help reduce the risk of fraud, service disruptions, or account freezes. If one account is compromised, others can serve as a financial backup.
- Opportunity to Maximise Returns
Different banks offer varying interest rates. By maintaining multiple accounts, you can place your savings in the ones offering higher returns, allowing you to make the most of your idle funds.
Cons:
- Complexity in Management
Juggling several accounts means more passwords, bank statements, and transactions to monitor. Without a proper system in place, it can become difficult to stay on top of your finances.
- Additional Charges and Fees
Some banks impose maintenance charges or penalties for not maintaining the minimum balance. Managing multiple accounts increases the risk of incurring such fees, which can eat into your savings.
- Risk of Overspending
The presence of multiple accounts may give a false sense of surplus, leading to careless or excessive spending. Without discipline, this can affect your overall financial health.
- Lack of a Unified Financial View
With money spread across various accounts, it becomes harder to get a clear picture of your total financial position. This fragmentation can make it challenging to set goals, track progress, or make informed financial decisions.