Know The Meaning Of Dormant Account & What Is A Dormant Account?

10^th Jul 2025...

If you don’t know how an account becomes a dormant account, this blog is for you. Read on and explore common causes behind this, understand associated risks, and learn some strategies to prevent this. Let’s begin by taking up what is a dormant account.

What exactly is a Dormant Account?

A dormant account means simply a bank account that has not been used by the customer for a significant stretch of time, typically two years. In the absence of deposits, withdrawals, or other regular transactions, the bank changes the account’s status to dormant and alerts the account holder. With digitally advanced platforms like Kotak811, you can activate your dormant account online after an authentication process. Users are usually encouraged to dissolve their dormant accounts as good financial practice.

Users are also encouraged to maintain a minimum activity level in their account to keep it active. In case an account becomes dormant and the holder wishes to re-activate it, they can contact their bank and make a request. 

Also Read: Account Payee Cheque - Meaning And How to Issue

Common causes of Account Dormancy

There can be many reasons why an account holder allows their accounts to go dormant. What’s common about most of those reasons is that they could have been avoided. Usually, negligence and ignorance lead to an account becoming dormant, meaning that it can be prevented. Here are the most common causes of dormancy:

Life events and negligence: Major life changes like moving, changing jobs, or financial difficulties can distract account holders from certain accounts, resulting in dormancy.

Lack of communication with the bank: Failure to update the individual’s contact information with the bank can result in missed notifications about account activity. This lack of communication contributes to dormancy. It can also keep banks from notifying a user before labelling their funds as 'unclaimed funds.'

Taking proactive measures to prevent an account from becoming dormant is important. Regularly monitoring accounts, conducting occasional transactions, and updating contact details also keep accounts active.

Effects and Implications of Dormant Accounts

All risks associated with dormant accounts are 100% avoidable, with a little attention. Here are some potential downsides of dormant accounts: 

1. Restricted Access to the Account: Once an account is labelled dormant, the account holder may be restricted in accessing their funds. This can be inconvenient if the account has money in it. Even more so during emergencies.

2. Wasteful maintenance expenses: Just because an account has entered the dormant zone doesn’t mean it is inactive. Banks usually charge a certain fee for maintaining an account. In the long run, a dormant account will eat up its own deposits, paying its maintenance for nothing.

3. Losing money as unclaimed funds: When a bank account is dormant for a long time, banks may classify it under 'unclaimed funds.' Banks may then transfer this money to a separate account to be dealt with as per their procedure. Account holders are usually notified of the undertakings if they are within the reach of banks.

Dormant accounts also pose a higher threat of identity thefts, security scams and unauthorised account usage.

Also Read: 7 Compelling Reasons Why Having A Savings Account

Identifying and Reactivating Dormant Accounts

Identifying dormant accounts involves a few steps. Banks and financial institutions often send notifications regarding dormancy. Account holders can make transactions, update account details, and contact the bank. Regular monitoring and proactive engagement help prevent dormancy.

In most cases, dormancy can be re-activated simply by contacting the banks. If an individual does that before the account is classified as ‘unclaimed,’ the process will be quick and simple. 

How to Prevent Account Dormancy

1. Make small transactions regularly
Even minimal deposits, withdrawals, or fund transfers are enough to keep your account active. A simple monthly or quarterly transaction helps avoid dormancy.

2. Set up automatic payments or deposits
Linking your account to utility bills, EMIs, or direct deposits ensures there is consistent activity. This is an easy way to prevent the account from being flagged inactive.

3. Review account statements
Checking your statements regularly helps you stay informed about the account’s status. It also gives you the chance to spot and resolve issues before they escalate.

4. Keep contact details updated
Ensure your phone number, email ID, and address are up to date with the bank. This way, you receive timely alerts and reminders about your account activity.

5. Consolidate or close unused accounts
If you maintain multiple accounts, consider merging or closing those that you no longer use. Fewer accounts make it easier to track and maintain regular activity.

Unclaimed Funds and Escheatment

When account holders of dormant accounts are not within the reach of banks, the account is classified as unclaimed funds. To ensure compliance with regulatory requirements and protect the account holder's interests, Indian banks follow the escheatment process.

During this, unclaimed funds are transferred to the respective authority. Typically, unclaimed funds are handled by the state government or the Depositor Education and Awareness Fund (DEAF), established by the Reserve Bank of India (RBI).

Escheatment aims to protect unclaimed funds and make them available once claimed. Account holders should at least keep their contact information updated with the banks. Periodically engaging with their accounts can help to avoid their funds being classified as unclaimed. 

Conclusion

While there is free account opening online, it is just as important to use the account regularly. An idle account can slip into dormancy, which brings avoidable risks. By making small transactions, reviewing your statements and keeping contact details updated, you can ensure your account stays active.

FAQs

1. Is a dormant account good or bad?

A dormant account is not inherently bad, but it limits your access to funds and services. Since banks restrict transactions on such accounts for security and compliance reasons, it is better to keep your account active.

2. What happens if your account is dormant?

A dormant account is one with no customer-initiated transactions for a certain period, usually 24 months. You cannot withdraw, deposit, or use digital services until the status is updated. However, interest (if applicable) continues to accrue.

3. Can a dormant bank account be reactivated?

Yes. You can reactivate it by submitting a written request to your bank, providing KYC documents, and making a small transaction such as a deposit or withdrawal. Once verified, the account is made active again.

4. How long does an account stay dormant?

An account becomes dormant if there is no activity for 24 months. If inactivity continues for 10 years, it is classified as an “unclaimed account,” and the balance is transferred to the Depositor Education and Awareness (DEA) Fund, though you can still claim it later.

5. What is the difference between inactive and dormant accounts?

An inactive account usually refers to one that has had no activity for 12 months. If the inactivity continues for 24 months, the account status changes from inactive to dormant, meaning stricter restrictions are applied.

6. What happens if a dormant account is not reactivated?

If you do not reactivate a dormant account, you cannot use it for transactions like withdrawals, deposits, or online transfers. Over time, the bank may also charge maintenance fees or even close the account, depending on its policies.

7. What transactions are considered to keep an account active?

Any customer-initiated transaction counts, such as deposits, withdrawals, fund transfers, cheque issuance, or updating account details. Even small transactions are enough to keep the account status active.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.