People often accumulate a surprising number of bank accounts over the course of their lifetime.
Whether it is your first college checking account or an old savings account you were keeping for a rainy day, you may look back years later and say, “Oh, yeah, I forgot I had that.”
But will the account still be there, or will the bank have closed it due to inactivity?
Generally speaking, the bank will collect inactivity fees as opposed to closing an inactive bank account. However, if the account balance is too low for the bank to collect fees, then the bank may permanently close the account.
In some cases of extended inactivity in which there are still funds available, the bank may turn the funds over to the state treasury in a process known as escheating, in which the state holds the funds as unclaimed property.
Throughout this article we’ll cover the main reasons why your bank may want to close your inactive accounts, as well as ways you can prevent this from happening.
Do Banks Close Your Inactive Accounts?
The bank will most likely not close your inactive account. Instead, they will assess inactivity fees, withdrawing funds from the inactive account to help cover the cost of account maintenance (record keeping, sending statements, storing data, and providing online security).
The inactive period before fees are collected differs between institutions, as does the rate collected. In some cases, the inactive period can be as little as four months. In general, most institutions will wait between 6 to 12 months before beginning to collect inactivity fees.
The following chart looks at the inactivity fee policy for some common banks:
|U.S. Bank||$5 per month||Four consecutive months of inactivity|
|Capital One||None||Escheatment after 24 months of inactivity|
|BBVA Compass||$5 per month||12 months|
|BMO Harris||None||Escheatment after 36 months of inactivity|
|Bank of America||None||None|
Why Do Banks Close Inactive Accounts?
Although banks will typically prefer collecting inactivity fees as opposed to closing inactive accounts, there are a couple of reasons why a bank would close an inactive account:
The Account Has Become Too Costly to Maintain
Although they may seem negligible to banking institutions that transfer millions of dollars each day, there is a cost associated with keeping a customer’s bank account open. Some of these costs include:
- Mailing paper statements
- Storing data
- Providing online security
Even if these costs only amount to a few dollars for each account, when considering that a bank will have thousands of accounts, if not more, then these maintenance costs can become very real. As a result, it may be cost-effective for a bank to close an inactive account that carries a very small balance.
Also, remember that banks use your money to make their own money, typically by loaning it out to other customers. As a result, inactive accounts are not helping a bank generate money. This is why, although not inactivity fees, per se, the bank will assess fees if an account balance drops too low, there are not sufficient transactions each month, or there is no direct deposit set up.
The State Has Started the Escheatment Process
When an account has been inactive for an extended period, generally between two to five years, the bank may be required to turn over the funds in the account in a process known as escheatment.
The most common reason for escheatment is for the state to collect funds from deceased people who do not have any heirs. After extensive efforts for the state to contact the owner or fiduciary agents of the escheated funds, the unclaimed money becomes the state’s property.
How Long Before an Inactive Bank Account Is Closed?
It usually takes at least 24 months for an inactive bank account to be closed. However, inactivity fees may begin accumulating in as little as four months.
As a general rule, accounts will only be closed if it is no longer financially viable to keep the account open or the state has started escheatment, which usually happens after three to five years.
How to Know if a Bank Account is Inactive
Most people find out the hard way that their account is inactive, either through a deposit or debit card transaction that gets rejected. However, if you want to be sure about the status of a forgotten account, you can contact the bank directly and declare the account active.
In addition, the bank must provide written notice three months in advance of closing an inactive account, giving the account holder time to make a transaction or declare the account active.
How to Activate an Inactive Bank Account
An inactive bank account can be reactivated simply by making a deposit or withdrawal. Speak with a banker and provide a formal request for reactivation of a dormant account. You may also need to provide some form of identity verification, but the bank cannot charge you for reactivating your dormant account.
How to Avoid an Inactive Bank Account
The easiest way to avoid an inactive bank account is to simply close any accounts that you do not plan on using at least every few months. Customers are constantly getting attractive offers to open new accounts, but let’ be honest here people, does any one need more than 2 or maybe 3 bank accounts? I really don’t think so.
My suggestion would be to consolidate and close any accounts that may run the risk of never being used.
If you deem it necessary to keep the account open, then it is essential that you regularly (at least once a month) perform activities that indicate your account is still in use. Your bank should provide you with a comprehensive list of ways to keep your account active and avoid service fees, but they generally include:
- Maintaining a specified account balance
- Making a certain number of debit card transactions each month
- Having the account set up for direct deposit
- Making qualified transfers between accounts
For those that have forgotten bank accounts, your institution is more likely to assess inactivity fees than close the account.
However, when funds drop too low or an extended period passes and the state claims the account as escheated property, there is a chance that the account will be permanently closed, so make sure to periodically use your accounts to avoid these situations.
Thanks for reading! As always, I hope you found some value in this article, but most of all, I hope you found the answer you were looking for.