A financial account posting no deposits, withdrawals, or transfers over a set period of time may be declared dormant, or inactive. While interest may continue to accrue on these accounts—given a sufficient balance—those payments are not taken into consideration when determining the account’s active or dormant status. This is because the financial institution hosting the account, rather than the account holder, makes interest payments.
Accounts can go dormant for any number of reasons. Among the most common are the death of the account holder, the owner of the account moving without providing a forwarding address, or the account being simply forgotten by its owner.
What Types of Accounts Can Be Considered Dormant?
Checking and savings accounts, brokerage accounts, 401(k) accounts, and pension fund accounts can all be declared inactive when the proper conditions are met (or fail to be met). In some cases, the period of inactivity can be as short as two years.
Certain types of property can also become classified as “dormant.” These include the contents of safety deposit boxes, checks, and/or money orders that go uncashed, unclaimed life insurance payments, tax refunds, and annuity contracts. Outstanding wages and salaries can also be considered inactive if they go unclaimed.
The amount of time required for an account or property to be declared dormant varies from state to state, as well as by the type of account or property. California, Connecticut, and Illinois for example, will declare most bank accounts inactive after three years. Delaware, Georgia, and Wisconsin allow five years. Wages and salaries can be considered dormant in as few as 12 months in most states.
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What Happens to Dormant Accounts?
As mentioned above, the account continues to exist if it has a balance capable of earning more interest than the fees assessed against it each year. When that isn’t the case, the fees will eventually consume the account.
In the case of the former, the financial institution may be required to turn the account over to the state. The funds could then be forwarded when the owner of the account or their beneficiary files a valid claim. However, before declaring an account dormant, the financial institution must usually make several good-faith efforts to contact the account holder. This underscores the importance of keeping your contact information up to date with all of your financial institutions.
Once the account is declared inactive, the funds are considered eligible for escheatment and pass to the state. The money is then listed on the state’s balance sheet and put to work. The cash can be used to build and repair roads, bridges, and highways—or fund libraries, schools, and prisons. It can also be used to finance other types of public projects such as parks.
Preventing An Account From Going Dormant
The key here is ensuring that some activity on your part is noted to the account on a regular basis. This can include deposits, withdrawals, or transfers of as little as five dollars. Updating your contact information will also be noted as account activity, as will logging into the account online.
Any contact made with the institution regarding the account is also considered activity—whether it’s on the phone, by email, live chat, or in person at a branch of the institution hosting the account.
In Summary
Accounts in which there have been no recognized activities for a given amount of time are considered dormant. The funds may be declared eligible for escheatment and passed to the state, unless the owner or their beneficiary files a legitimate claim.
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