Close that inactive bank account or pay the price

Many people do not know that accounts which remain inactive for long can accrue ledger or penalty fees, leaving most in shock when they receive statements asking for payment of high amounts of money 

By  PAUL LETIWA pletiwa@gmail.com Posted Wednesday, January 26 2011 at 19:02

When Stephen Leshan, a 27-year-old computer programmer went to the ATM of a leading bank to withdraw money, he did not expect his transaction to be rejected.

But it was, with his account, which he had left reading positive now having accumulated a debt of Sh7,200.

This information from the bank came as a rude shock to him, for he had never imagined it was accruing money and would end up putting him debt.

At the time, he did not need the account since he had others. “I have several bank accounts and it has been long since I used the one said to be dormant;

“I think almost three years. I thought it was still okay. After I contacted the bank, I was told the ledger fee of Sh300 per month had accumulated to Sh7,200. I was forced to pay that sum before being allowed to operate it again,” he says.

To his surprise, later on discussing the issue with friends, he discovered that a colleague at work had also been forced to pay Sh43,000 after his ledger fee had accumulated for four and half years.

“I was shocked. He showed me an email from his former bank asking him to pay a debt of Sh43,000. He first got a call from the credit bureau before he contacted the bank from which he got an explanation.”

But Mr Leshan and his friend are not the only cases. Many people leave a trail of unused bank accounts when they switch jobs, move from one town to the other, or simply because they never get around to using or closing the accounts they no longer need.

According to experts, financial institutions charge inactive fees and penalties on dormant or inactive accounts.

For most banks, an account is considered dormant when no activity — deposits or withdrawals — have occurred for a period of five years. The length of time necessary to declare an account dormant is defined by a State statute.

Miss Phyllis Wangwe, who works with the legal affairs counsel at the Kenya Bankers Association and who is also a financial educator, says customers with current and savings bank accounts are the most affected when the banks declare these accounts inactive.

“In most cases, inactive bank accounts are limited to two years. You will be given a notice of dormancy.

After the bank sends the dormancy notice and you still do not use your account, it will automatically deduct a small percentage from your savings account.

When it reaches zero balance, the bank will close it. If it is a current account, you may end up paying accumulated ledger fees,” says Mrs Wangwe.

The best thing, she adds, is for the customer to make sure the bank account he or she does not use is closed.

“Most financial institutions notify clients and request an update. Those accounts that go unattended for too long can be considered dormant.

“If you would like to avoid inactivity fees, the simplest way is to make sure there is activity in your account, even if it’s small.”

Most institutions have an account minimum. Mr Kevin Odongo, a financial expert in Nairobi, says finding out exactly how much money you need to maintain in your bank account before it is considered inactive or dormant, is essential.

“Some bank accounts are considered inactive or dormant if the balance falls below Sh1,000. If the account balance falls below the account minimum, you risk paying inactive account penalties and the losing banking privileges you have enjoyed,” he says.

Mr Clement Maina, a Nairobi-based financial planner, says the rise of inactive bank accounts is because many people have opened too many bank accounts. “An individual should not have many bank accounts he or she cannot manage.

Having more than two savings accounts is not advisable. You can open one for savings, while the other linked to investments. Any other account kept, but left unused, attracts inactive fee penalties.”

Moreover, adds Mr Maina, it’s inconvenient to maintain many accounts. “The more accounts you have, the more account numbers, personal identification numbers, debit card numbers and endless paper work.”

Besides, whatever little interest you earn on each of them, will be taken into account when calculating your income for tax purposes. The interest that a savings account earns is taxable.

“If for some reason you forget to mention the interest earned in such an account in your income earned for tax purposes, and the tax authority finds that out, it will bring unnecessary complications to your financial life.”

Since the period of account inactivity varies between banks, it is possible that any account you may not have used for a few months has actually become inactive or dormant.

“At this stage, if you want to use them, you will face several restrictions. You won’t be able to use a debit card; you can’t request for a cheque book or change your mailing address.

If you don’t intend to use more than one or two accounts, close them and invest the funds in other investment avenues, which give better returns.”

Experts also warn that leaving your bank account idle attracts frauds, yet identifying a fraud in an unused account is not easy.

In other instances, bank employees have embezzled small amounts of money through inoperative accounts or even fixed deposits that haven’t been claimed for a long time.

“Close that account you are not using, since keeping it inoperative or dormant is risky. It’s possible that a dishonest bank employee can forge your signature to steal small amounts or transfer funds from your account to another account, or even use such account for illegal activities.”

The possibility of identity theft and net banking frauds cannot be ruled out, especially in an ignored account.

Mr Maina says, “such accounts are prone to be used for illegal transactions, money laundering or funding terrorism, any of which could land a bona fide customer in serious trouble.”

In cases where you have moved location and failed to update the current address on such inactive accounts, your account statements and other correspondence sent to you by the bank can be misused.