Sometimes, a financial account like a checking account will sit dormant, or unused, for an extended period, and an inactivity fee will be charged. Usually, a bank, credit union, or other financial institution will start to assess an inactivity fee after six months of no activity in the account. However, some banks may wait up to a year before applying inactivity fees to the account.
To better understand and steer clear of this annoying fee, read on. Below, we’ll explore how inactivity fees work, including how much they cost and how to avoid or reverse these fees.
Key Points
• Inactivity fees are charges for accounts with no transactions over a certain period of time.
• Regular account activity prevents inactivity fees and helps you stay on top of your finances.
• An easy way to avoid inactivity fees is to set up a recurring transaction, such as direct deposit of your paycheck or automatic bill pay.
• After prolonged inactivity, banks may close accounts and transfer funds to the state.
• Reclaiming escheated funds is possible but may involve additional effort.
What Is an Inactive Account Fee?
Banks or other financial institutions apply inactivity fees or dormancy fees when financial accounts just sit, without money going in (deposits) or out (withdrawals). Perhaps the account holder isn’t conducting any kind of activity at all; not even checking the balance for a stretch of time.
Financial institutions can apply these inactivity fees to all sorts of accounts, like brokerage or trading accounts, checking accounts, and savings accounts. These fees are a way for banks to recoup some of the costs they incur when maintaining dormant accounts and can trigger the account holder to reactivate the account.
Recommended: What Happens if a Direct Deposit Goes to a Closed Account?
How Do Inactive Account Fees Work?
Here’s a look at the sequence of events that can lead to inactivity fees:
1. No transactions occur within the account. Let’s say you opened a high-yield savings account to fund your next vacation. But life got in the way, and you forgot about it for six months, leaving it inactive. Keep in mind, the definition of inactivity may vary by the financial institution. So, while some banks may only require you to conduct a balance verification to keep the account active, others may require, say, a bank deposit or a withdrawal, to keep the account active.
2. The account is flagged for inactivity. Since money isn’t flowing in or out of the account, the financial institution flags the account. After this happens, some financial institutions may send a notification to the account holder before they begin charging a fee. The notice allows the account holder to take action before fees begin racking up. But other banks may not send a notification before they begin charging you inactivity fees. That means you are responsible for keeping tabs on your accounts so you can ensure they are active and up-to-date.
3. The financial institutions begin charging inactivity fees to the account. Usually, the financial institutions will begin charging an inactivity fee between several months to a year after the last transaction took place within the account.
If these fees go unnoticed for a few years, the account will be deemed a dormant bank account. Every state has a different timeline for determining when accounts are dormant. For example, California, Connecticut, and Illinois considered accounts dormant after three years of inactivity. On the other hand, an account requires five years of inactivity in Delaware, Georgia, and Wisconsin to move to the dormant category.
Once the account is considered dormant, the financial institution will reach out to let you know that if you don’t attend to the account, it must be closed and transferred to the state — a process called escheatment. But, even if your account funds end up with the state, the situation isn’t hopeless. There are several ways to find a lost bank account and hopefully retrieve any unclaimed money.
How Much Do Inactive Account Fees Cost?
Inactive account fees can range between $10 to $20 per month, depending on the bank.
Remember, not all banks charge inactivity fees. However, if your account does have inactivity or dormancy fees, guidelines must be outlined in the terms and conditions of the account. Check the fine print or contact your financial institution to learn the details of these and other monthly maintenance fees.
Why Do Banks Have Inactive Account Fees?
One of the primary reasons banks why charge inactivity fees is that states govern accounts considered inactive and abandoned. Usually, an account that has had no activity for three to five years is considered abandoned in the eyes of the government.
Depending on the state’s laws, the financial institution may have to turn over the funds to the Office of the State treasurer if the account is deemed abandoned. At this point, the Office of The State Treasure is tasked with finding the rightful owner of the unclaimed asset.
Since banks do not want to hand over funds, they may charge an inactivity fee as a way to keep the account active. Thus, the financial institution won’t have to give the account to the state, keeping the money right where it is.
Additionally, inactive accounts cost financial institutions money. So, to encourage the account holder to start using the account, they charge inactivity fees. While some financial institutions send inactivity notices, others may not. Therefore, if your account has been inactive for a long time, you may only notice the fee once your bank account is depleted. At this point, the financial institution may choose to close the account.
Recommended: Can You Reopen a Closed Bank Account?
Can You Reverse an Inactive Account Fee?
It never hurts to call your bank and request a reversal of inactivity fees. However, if the financial institution is unwilling or unable to reverse the fees, you may want to compare different account options to find a type of deposit account that better suits your needs.
Make sure to compare all fees and any interest rates that might be earned to identify the right account for your needs.
Tips to Avoid Inactive Account Fees
Inactive account fees are a nuisance. Fortunately, there are several ways you can avoid them entirely. Here’s how:
• Set up recurring deposits or withdrawals. Establishing a direct deposit into your account or regular transfer out of your account can help keep it active and avoid inactive account fees.
• Review accounts regularly. Checking your financial accounts and spending habits regularly can help you keep tabs on your money and also decide if keeping a specific account open is worth it.
• Keep contact information up-to-date. If your account becomes inactive, some banks may attempt to contact you before charging you an inactive account fee. If you have the wrong information on file, you may never receive a heads-up about the additional fee.
• Move money to another account. If you don’t want to maintain an account, it’s best to move the money to an account you actively manage. Then close the account once the money has been transferred. That way, you’ll dodge fees and streamline your financial life.
The Takeaway
When you don’t use an account, your financial institution could begin assessing an inactivity fee. You can avoid these charges by keeping watch of your bank accounts and setting up automatic deposits or withdrawals. If you discover you’re not using your account, you can empty and close it, so you don’t have to worry about extra fees.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Can a bank shut your account down if you have an inactive account fee?
Yes. If there has been no activity on your account for a while (the timeframe varies by financial institution), your bank generally has the right to close your account. Plus, it’s not required that they notify you of the closure.
Are inactivity fees the same as dormancy fees?
Yes, inactive and dormancy fees are the same. They both refer to fees that are applied to an account when it’s inactive for an extended time.
Besides inactivity fees, what other fees do banks often charge?
ATM fees, maintenance fees, overdraft fees, and paper statement fees are just a few fees banks levy on their bank accounts. Before you open an account, make sure you understand the type of fees that accompany your account, so there are no surprises down the road.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
Photo credit: iStock/Prostock-Studio
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