Dormant AccountWhen an account has had no financial activity for a long while

While always having cash on hand is convenient for on-the-spot purchases and payments, having too much of it can often be disadvantageous.

For one, it does not earn any interest.

This means that it does not have any form of protection against the effects of inflation.

Also, it most probably does not have that much protection against theft.

Generally, the cash that you keep in a bank or financial institution has more protection than the cash you have with you.

So if you have any extra cash, it would be wise to keep it in a bank (or a similar financial institution) rather than keep it in your wallet.

Not only will it have more protection against theft, but it will also have a form of protection against the effects of inflation.

Savings accounts often earn interest, which helps them grow over time.

However, if you do have savings accounts, be sure to keep them active.

What this means is that you should actively deposit to or withdraw from them.

This will notify the bank (or financial institution) that you’re still actively using the account.

Otherwise, if a savings account has no activity for a certain amount of time, it will become a dormant account.

In this article, we will be discussing what a dormant account is.

We will learn its definition as well as the specifics of how an account becomes one.

And if an account becomes dormant, can the owner of the account still recover it? Let’s find out as we proceed with the article.

What is a Dormant Account?

A dormant account refers to an account (e.g. savings account) that has no financial activities other than accruing interest or dividends for a long period of time.

For example, a savings account that has no deposit or withdrawal activities for a certain amount of time.

If an account is dormant or about to become one, the financial institution often contacts the owner/s to inform them.

If a dormant account is left unclaimed for a certain period of time, the financial institution is required by state laws to transfer the resources held in such an account to the state’s treasury.

The amount of time will differ from state to state.

Dormancy isn’t exclusive to saving accounts.

Other accounts that can become dormant include checking accounts, 401(k) accounts, pension fund accounts, brokerage accounts, etc.

To prevent an account from becoming dormant, the account holder must undertake financial transactions at least once in a while.

These transactions include check transactions, cash deposits, cash withdrawals, etc. Some banks require activities at least once every six months, while some may be more strict or lenient.

Aside from state law requirements, banks (and other financial institutions) often make an account inactive or dormant to protect it from the risk of fraudulent activities.

For example, an account is untouched for a long time.

A bank employee can then easily get a sample of the account holder’s signature.

With the sample, the bank employee can easily forge the signature to make fraudulent transactions.

Tagging the account as inactive or dormant will protect it from such fraudulent activity.

How a Dormant Account Works

An account becomes dormant if it has no activities for a long period of time.

The amount of time will depend on bank policies and state laws.

The automatic posting of interests and dividends is not an “activity”.

This means that if an account’s only activity includes the accrual of interest and/or dividends, it may still qualify for dormancy.

On the flip side, the simple act of logging into the account is considered an activity.

So to easily prevent your account from becoming dormant, you may simply log into it once in a while.

When an account becomes dormant (or is about to become one), the bank or financial institution must inform the account holder using the most recent contact information.

If the dormant account remains unclaimed for a certain amount of time even after exhausting all options to contact the account holder, the resources held in it become unclaimed property.

State laws will then require the financial institution to transfer such resources to the state’s treasury department.

States have different rules on the amount of time before an account becomes dormant.

For example, in California, an account becomes dormant if it sees no activity for at least three years.

While in Delaware, an account only becomes dormant if it sees no activity for at least five years.

Outside of the US, the dormancy period may differ for each bank or financial institution.

For example, one bank may require activity at least once every six months to prevent dormancy.

On the other hand, another bank may only require activity at least once every 24 months.

How are Dormant Accounts Treated?

The treatment of dormant accounts will differ for each bank or financial institution.

Some may charge service fees (or dormancy fees) on dormant accounts.

Those that do charge service fees will have differing amounts.

Usually, the longer an account stay dormant, the higher its corresponding service fees will be.

If a dormant account’s balance becomes zero (due to the collection of service fees), the bank may choose to close it after a certain amount of time passes.

To reactivate a dormant account, the account holder may do any of the following transactions that the bank or financial instruction requires.

Generally, these include the following:

• Transactions through a check
• Contact the bank or financial institution
• Make a deposit or withdrawal through an ATM
• Make an internet banking transaction on your dormant account
• Transactions through mobile banking on your dormant account

Escheatment Statute of Dormant Accounts

When the resources held in a dormant account become unclaimed property, the bank or financial institution is required by state laws to transfer them to the state’s treasury department.

To govern this process, states enact escheatment statutes.

These statutes protect the unclaimed property from being returned to the banks or financial institutions instead of the original owners.

Any transferred unclaimed property becomes the responsibility of the state.

It is to take over the record-keeping and returning of any unclaimed property.

The owners or their heirs (in the case of deceased owners) may then claim the unclaimed property.

To do so, they must first file an application with their state.

Depending on the state, there may be a nominal handling fee or no fee at all.

Resources from dormant accounts don’t fall under the jurisdiction of the statute of limitations.

This means that the state will perpetually keep unclaimed properties that were collected from dormant accounts.

As such, owners or their heirs can claim and recover their property (those from dormant accounts) at any time.