If you have ever walked into a bank to close a savings bank account, you must have noticed the keenness of the relationship manager to keep your account alive. You may have even seen a delay in the process of account closure. But did you know that there’s a fee for closing a bank account?
In case you don’t keep a bank account open for a certain period of time, most banks levy a fee. The account closure charge is between Rs. 100 and R1,200 if you close the bank account between 15 days and one year from opening it. To figure out the cost, either call your bank or check the bank’s website. But the question is can banks slap a fee for account closure considering that you are asking for your own money? Also what’s the regulators role?
What banks say
Banks say the charges are to recover the cost of opening an account. “We incur a cost when we open an account as we give cheque books, a kit, debit card, etc.,” said KVS Manian, president — consumer banking, Kotak Mahindra Bank Ltd. “Now if a customer discontinues the service immediately, then we have to ensure that the bank makes good the money that has been spent.”
Adds D Sampath, additional general manager, Federal Bank Ltd: “When a bank account is opened, we see it as a long-term relationship. And if suddenly the customer decides to close the account, at times the bank can incur a loss too.” Federal Bank charges R150-200 if the account is closed before six months.
What other stakeholders say
The Reserve Bank of India (RBI) states that the decision to prescribe service charges has been left to individual banks. RBI further states while fixing service charges for various types of services such as charges for cheque collection banks should ensure that the charges are reasonable and are in line with the average cost of providing these services. The Indian Banks’ Association (IBA), national bankers’ body, too, has the same view.
“Banks have always been charging for account closure,” said K Unnikrishnan, deputy chief executive, IBA. “The service charge for account closure is left to the discretion of banks. IBA doesn’t want to comment on this.”
“We don’t regulate banks charges,” said AC Mahajan, chairman, Banking Codes and Standards Board of India, an autonomous and independent banking watchdog. “But we always tell them that there should be transparency. Banks are supposed to disclose the charges to the customers in the beginning itself. If banks introduce charges without giving notice of at least 30 days to exist, they are excluded from levying the charges.”
But why do banks charge within a certain period of time? Generally, the first 14 days are given as grace period so that the customer can understand the behaviour of the bank. Hence, there are no charges if you close the account within 14 days. Also after the completion of one year, normally a bank is expected to have recovered the cost of operating an account. So the banks generally dont charge. Some banks have extended the grace period to 30 days. Majority of banks clearly mention on their website that they don’t charge a fee after one year.
However, there are a few banks that don’t give a clarity on this either. When banks open an account they have to spend on automated teller machine card, cheque books and on the various studies that they conduct before opening an account. On average, a bank spends anywhere between R60 andR300 for opening one account. A cheque leaf can cost 10-20 paise.
So does a bank have the right to charge more than the cost of opening an account?
“The charges should be reasonable with the cost involved. Hence, it is unfair if banks levy hefty charges to make profit. We expect banks not to make profit out of account closure. The charges should only be on the basis of costing and not a punishment for the customers,” said Mahajan.
What should you do?
There is nothing much that you can do as of now other than looking at the right time to exit. “You can’t negotiate this fee,” said Adhil Shetty, CEO, Bankbazaar.com, a banking portal. “If you want to switch to another bank, you will have to consider cost and see if switching is more beneficial than account closure.”