Dormant Account: Examples and How Does It Work


Key Takeaway:

  • Dormant accounts are accounts that have not seen any activity or transactions for an extended period of time, usually exceeding a specific time frame defined by the bank or financial institution.
  • Factors that may cause an account to become dormant include the account holder s death or relocation, forgetfulness or a low-balance account.
  • The consequences of having a dormant account include loss of interest, inactivity fees, and unclaimed funds. To prevent an account from becoming dormant, it s advisable to periodically log in and review transactions or to set up automatic payments or deposits.
  • Examples of dormant accounts can range from forgotten savings accounts or investment portfolios to unused credit cards or mobile payment apps.

Are you wondering what a dormant account is and how it works? You can find the answers here and understand how it may affect your finances. Uncover the facts and gain helpful insight into this important financial topic.

Definition of Dormant Account

Dormant accounts are financial accounts that have been inactive for a prolonged period. These accounts have had no withdrawals, deposits, or account holder communication within the specified time frame. Dormant accounts are usually governed by specific banking laws and regulations that vary from region to region. These laws dictate how account holders can reclaim their funds and how banks can report and handle these inactive accounts to the relevant bodies. Dormant accounts are an essential aspect of personal finance and can have significant implications for both the account holder and the financial institution.

When a customer does not transact in their account for a long period, the Bank marks the account as a Dormant Account. The account holder must complete reactivation formalities or initiate financial transactions within the stipulated period to avoid bank deactivation. A dormant account, typically, does not generate any interest or dividend. The Bank may levy annual maintenance charges on dormant accounts, as per the rules.

It is essential to keep track of your dormant account's status to maintain the best of your funds' potential. Moreover, if you don't use the account for an extended time, it may invite penalties or risk account deactivation. It is advisable to close the account if you do not intend to use it in the future.

To avoid account dormancy, ensure periodic capital and interest withdrawals, cheque deposits, or electronic transfers to keep your account active. Additionally, keep the bank updated with accurate contact information and periodically visit the bank to avoid unnecessary account charges. By adhering to these suggestions, you can avoid financial loss and ensure optimal use of your funds.

Factors that cause an Account to become Dormant

Inactivity, insufficient transactions, and lack of account owner communication result in accounts becoming dormant. Dormancy fees and state requirements vary by institution, and inactive accounts cannot generate revenue. Dormant accounts also pose security risks and administrative strains.

To avoid account dormancy, set up automatic payments, keep contact information up-to-date, and regularly monitor accounts.

Consequences of Dormant Accounts

It's essential that you keep track of your bank accounts to dodge the penalties of having a dormant account. In this article, we'll examine the side effects of leaving an account dormant for too long. These include loss of interest, inactivity fees and unclaimed funds.

Loss of Interest

Interest Depletion:

Dormant accounts can result in the loss of interest. This occurs when an account has not been used or accessed for a long time, leading to a decrease in the amount of interest earned on the account. It is imperative for individuals to monitor their accounts and keep them active regularly.

In addition to potential loss of interest, dormant accounts may also incur fees or penalties. Depending on the financial institution’s policy, there may be charges levied on inactive or dormant accounts that can eat into whatever savings have accumulated.

Unclaimed balances are an example of dormant accounts with extreme consequences. When bank account holders or other investors cannot be located, their assets will go unclaimed and remain inactive in a legal limbo state without collecting any earning potential – sometimes indefinitely – until they are ultimately considered forfeited by law.

One infamous case is that of an Illinois man who discovered several million dollars belonging to him through his father’s investment portfolio. The funds had been left untouched and inactive by his father before he passed away and remained undiscovered for decades until his son finally filed a claim with authorities after uncovering old paperwork. Don’t let your inheritance end up like this!

Looks like the bank wants to charge you for taking a nap on your account, better set an alarm for your next transaction.

Inactivity Fees

Accounts that remain inactive or dormant for some time may attract fees called 'Account Maintenance Fees.' These fees are charged to maintain the account and is usually deducted monthly until the account is reactivated or closed.

In case an account holder misses to renew or update their account information in a timely manner, the bank may impose Inactivity Charges on the account. The fee charges depend on several factors such as bank policies, type of account, and duration of dormancy.

It is essential to check bank policies regularly and remain up-to-date with renewal dates. Account holders must ensure they do not miss deadlines to avoid being penalized with Inactivity Charges.

Prevention is better than cure - avoiding inactivity fees should be a priority to cut down unnecessary raises in banking expenses. It is recommended that users balance their accounts regularly and maintain communication with their banks more often through messages, emails, or phone calls.

Don't worry, unclaimed funds are like that old sweater you forgot about in the back of your closet - they're still there, waiting for you to remember them.

Unclaimed Funds

When funds remain untouched for a prolonged period, they become inactive. Such inactive assets are known as Lost Funds. These funds are then transferred to the state government's unclaimed property department or repository. Once transferred to the state treasury, the lost ownership rights of those accounts will stop existing.

Unclaimed Funds consist of various assets and properties that surpass a certain dormant-period limit, such as abandoned bank accounts, insurance policies, dividends, deposits or cashiers checks - all sorts of assets holding monetary value that have been ignored by their owners for an extensive period.

It is estimated that approximately $7.5 billion in forgotten money was turned over to state treasuries in 2020 alone; ultimately deposited on reclaimable terms--to rightful heirs-- thereafter due legal procedures.


Don't leave your account hanging in limbo, give it some love before it's doomed to dormancy.

How to Prevent an Account from becoming Dormant

Preventing Dormancy in Accounts

To avoid account dormancy, it's important to remain active by frequently transacting and keeping the account details updated. Regularly logging in to the account, updating personal information, and utilizing all available account functionalities, such as online banking, can prevent the account from becoming dormant.

Additionally, enabling automatic payments and direct deposits can help maintain account activity.

According to a study by the National Association of Unclaimed Property Administrators, in the US alone, over $7.4 billion in dormant accounts and unclaimed property are held by state governments.

Examples of Dormant Accounts

Dormant accounts refer to accounts that have become inactive due to a lack of transactions or any other activity within a particular period. Here are some variations of dormant accounts:

  • Accounts with No Withdrawals: Where an account holder has not made any withdrawals or any other transactions for a specific period, then the account is deemed dormant.
  • Accounts with No Deposits: Similarly, accounts that have not received any deposits or activity within a certain time frame will be considered dormant.
  • Inactive Savings Accounts: When a savings account has no amount credited or debited for a specified duration, it may be classified as an inactive account.

It's important to note that banks or financial institutions have varying policies regarding how long an account must remain inactive before it is classified as dormant. Checking your bank's dormant account policy is a good idea to avoid losing funds.

Pro Tip: To prevent your account from becoming dormant, ensure that you keep your account active by making transactions regularly.

Five Facts About Dormant Account:

  • ✅ A dormant account is typically an account that has had no activity or transactions for a specific period of time, determined by the financial institution. (Source: The Balance)
  • ✅ Dormant accounts are often subject to fees or penalties, such as monthly maintenance fees or account closing fees. (Source: Investopedia)
  • ✅ The period of inactivity required to designate an account as dormant varies by institution and account type, but is typically around 12 to 24 months. (Source: NerdWallet)
  • ✅ To prevent an account from becoming dormant, it is important to make at least one transaction or activity, such as a deposit or withdrawal, within the specified timeframe. (Source: The Balance)
  • ✅ An example of a dormant account is a savings account with no withdrawals, deposits, or other activity for two years. (Source: The Balance)

FAQs about Dormant Account: Definition, How It Works, And Example

What is a Dormant Account?

A Dormant Account refers to an account that has had no transactions or activity for an extended period. The period can vary depending on the institution but it is typically 12 months or more.

How Does a Dormant Account Work?

When an account becomes dormant, the financial institution will typically notify the account holder and request that they make a deposit, withdrawal, transfer or perform some other activity to avoid it becoming officially inactive. If the account remains dormant for a set period, the bank or institution may begin to charge fees or close the account altogether.

What are the Consequences of Having a Dormant Account?

There are different consequences depending on the institution's policies and the type of account. Some financial institutions may charge fees for dormant accounts, while others may close the account and transfer the funds to the state as unclaimed property.

Can a Dormant Account be Reactivated?

Yes, a Dormant Account can be reactivated by performing a transaction or contacting the institution to request reactivation. Typically, the account holder will need to verify their identity.

What is an Example of a Dormant Account?

An example of a Dormant Account is a savings account that has not had any deposits, withdrawals, or other activity in over a year. The account holder receives a notice from the bank advising them of the inactive status and requesting that the account be used or closed.

How Can I Avoid Having a Dormant Account?

To avoid having a Dormant Account, it is important to use your account regularly, either by making deposits, withdrawals or performing other transactions. It is also a good idea to keep track of your accounts and make sure that you are aware of any notifications or communication from your institution regarding your account status.