Dormant bank accounts have had no activity for a certain period of time, typically three to five years. That means no deposits, withdrawals, transfers, or other processes. They have just been sitting untouched. These inactive accounts can be charged inactivity fees by financial institutions, and if there is no activity for an additional period, the account may be closed.
This can be a rude awakening for some consumers, but a bank or credit union has the right to close a dormant account without your permission. Here are the facts you need to know to protect yourself.
What is a Dormant Account?
A dormant account is a financial account in which there hasn’t been any posted activity for a time period set by the bank or credit union. Activity includes such transactions as deposits, withdrawals, ATM usage, or transfers. FYI, earning interest doesn’t count as a posted activity because it is not initiated by you, the account holder.
The official definition of a dormant bank account varies by state and account type, but it most often happens if an account is inactive for three to five years. As with having a negative bank account balance and letting it sit, an inactive account is not a good sign for your wealth health.
How Does a Dormant Account Work?
These steps change a bank account from active to dormant:
1. No deposits, withdrawals, or transfers for one year. Some accounts get no love. Perhaps you ignore rainy-day savings while balancing your day-to-day budget and forget about an account. But 12 months with no transactions in an account will set this dormancy process in motion. (One of the top benefits of bank account linking on your bank’s website or app is that you can see all accounts at a glance. This can be a good way to fend off an account going dormant.)
2. The financial institution flags account as inactive. Nada is happening, not even a deposit, withdrawal, or transfer to pay for a Starbucks latte. The bank takes note and declares it a dormant bank account.
3. The financial institution starts charging an inactivity fee. Some banks charge zero, but others slap on fees of $5 to $15 per month. Look for these fees on your monthly bank statement.
4. After beginning one year, there’s no account activity for another two years. The timing varies by state. In California, Connecticut, and Illinois, for example, most bank accounts go dormant after three years. In Delaware, Georgia, and Wisconsin, five years must pass.
5. The financial institution changes the account from inactive to dormant. The bank will try to contact the account holder (a problem if you moved and didn’t update your address) and allow a certain amount of time for a response.
6. The financial institution closes the account and sends any leftover funds to the state. This is an automatic legal process called escheatment. But the story is still not officially over. You do have options if your assets have been transferred to the state due to a forgotten or lost bank account (more on this below).
Types of Accounts That Can Be Considered Dormant
Several different types of bank accounts can fall under the dormant account heading, including checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), and investment accounts. Even safe deposit box holdings can be considered a dormant account if inactive for a number of years.
Worth noting: Your bank account might also be locked, or frozen, because of suspected fraud, unpaid child support, or unpaid bills. These are reasons why you have a frozen bank account, which is different from a dormant one.
What Is Escheatment?
If you have a bank account that is dormant, escheatment will likely occur. Escheatment is the process by which unclaimed assets are automatically transferred by the bank to the state. When this transfer happens, it means you can no longer reclaim your funds from your financial institution. If you want to get them back, you will have to take other steps.
Recommended: Guide to Bank Account Closure Letters
How Can I Reclaim Escheated Funds?
Every state must follow procedures to document the escheatment and is required to allow time for the original owner to come forward. Here is the process to get your money back:
1. Search a public database such as Unclaimed.org or MissingMoney.com to link to your state’s unclaimed funds. The search should be free of charge. Don’t put your trust in fraudster sites that charge any fee at all, even $1 for a “trial search period.”
2. If you see your name and property listed, follow the stated procedure to verify ownership. You will need to provide specific documents and of course, identification.
3. The money will be released to you.
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Consequences of Having a Dormant Account
Having an account go dormant can impact your ability to access and use the funds.
• No withdrawals at ATM or branch
• No address changes
• Cannot add or delete joint account holder
• No online banking transactions
• No investment transactions
• No ATM card renewal
• You might wait months or even years to reclaim escheated funds from the state
• Risk of fraudsters stealing your escheated funds
Difference Between a Dormant and Frozen Account
A dormant account is a bank or investment account so named after showing no transactions over a period of three to five years.
A frozen account is a bank or investment account that is temporarily locked, meaning you cannot withdraw money or funds. Usually, an account is frozen because you owe money to a creditor or the government. You may need to take steps to remove a hold on your bank account.
Whether dormant or frozen, both situations can cause you financial hardship.
Why Does an Account Go Dormant?
An account goes dormant when the bank does not see any activity in it for three to five years. This can indicate that the account has been abandoned or forgotten.
Keeping Your Account From Going Dormant
To keep your checking or savings account from going dormant, be sure to use it regularly, even if it’s just to make a transfer or deposit from another of your linked bank accounts a couple of times a year. If you let it sit without any activity, you run the risk of the account going dormant.
When an account goes dormant but the funds haven’t been transferred out or your bank account is closed for any other reason, it’s wise to take steps to remedy the situation and either reopen your bank account or officially close it.
The Takeaway
Banks and credit unions take note of accounts that show no transactions for a long period of time. The dormant account process starts with one year of no activity. After three to five years, depending on your state, ends with your money being turned over to the state.
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FAQ
What happens if my account is dormant?
If your account is deemed dormant due to inactivity for three to five years, your bank will try to notify you before closing it. If you don’t respond in the given period of time, the account will be closed and the money turned over to the state.
How do I reactivate my dormant account?
You can reactivate a dormant account with your bank or credit union between the time it has been declared dormant and the time the funds are turned over to the state. The key is responding promptly to the bank’s communication saying your account will be closed.
How many years is an account dormant for?
After a total of about three to five years “asleep” with no transactions (though this can vary by state), a bank moves an account to dormant status. The account remains dormant while the bank tries to contact the account holder before turning the funds over to the state.
Photo credit: iStock/AntonioSolano
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