Why Do Banks Charge Dormant Account Fees?

Bank accounts untouched for an extended period are classified as “dormant,” leading to fees. These charges, known as dormant account or inactivity fees, are common among financial institutions. While they may seem punitive, these fees serve various purposes for banks, from covering operational expenses to mitigating risks associated with inactive accounts.

Understanding Account Dormancy

A bank account becomes dormant when there has been no customer-initiated activity for a specific period. This status often occurs after 24 months to five years of inactivity, depending on the financial institution and state regulations. Inactivity refers to transactions such as deposits, withdrawals, transfers, or logging into online banking. System-generated activities, like interest payments, do not count as customer-initiated activity to prevent an account from becoming dormant.

Reasons Behind Dormant Fees

Financial institutions impose dormant account fees for several reasons. A primary reason is to cover administrative costs like monitoring, record-keeping, and sending notifications. These fees also help banks manage regulatory compliance, such as anti-money laundering checks and reporting before unclaimed funds are escheated to the state. Inactive accounts can pose a higher risk of fraud and identity theft, and fees partially offset the resources banks dedicate to managing these risks. Charging these fees also incentivizes customers to reactivate or formally close accounts, ensuring bank resources are not indefinitely tied to unused accounts.

Preventing Dormant Account Fees

Account holders can prevent their accounts from becoming dormant and incurring fees by regularly initiating small transactions, such such as a minor deposit or withdrawal, which keeps an account active. Setting up automatic transfers between linked accounts or arranging direct deposits also ensures consistent activity. Periodically logging into online banking platforms counts as activity for many institutions. Ensure the bank has up-to-date contact information, as financial institutions are required to notify account holders before imposing fees or classifying an account as dormant. Reviewing the bank’s dormancy policy helps understand the requirements to maintain active status. Dormancy fees can range from $5 to $25 per month.

Disposition of Unclaimed Funds

If a bank account remains dormant for an extended period beyond the bank’s internal dormancy thresholds, the funds are subject to “escheatment.” Through escheatment, banks are legally obligated to transfer these unclaimed funds to the state’s unclaimed property division. This process ensures the money is held in custody by the state for the rightful owner or their heirs, rather than remaining with the financial institution indefinitely. Account owners or their legal representatives can reclaim these funds from the state by searching state-run unclaimed property databases, such as those provided by the National Association of Unclaimed Property Administrators (NAUPA) or MissingMoney.com. The reclamation process requires providing proof of identity, social security number, and current address to verify ownership.