Meaning of Dormant Account 

A dormant account is a financial account that shows no activity for a long period of time. Usually, this refers to checking and saving bank accounts that have not had money withdrawn from them for at least months. There are usually penalties for keeping money in dormant accounts without ever withdrawing them.

A dormant account is created as such on its own by the action of the bank or institution which holds the deposits. The government transfers the assets under such accounts to the treasury after a certain period of time. The government has the right to cease all unclaimed assets under such accounts.

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How Does Dormant Account Work?

A dormant account will be devoid of activities like withdrawal, deposits, money transfers, or checking the account for a certain period. Checking and savings accounts are the most common accounts that can become dormant. Still, other types like 401ks, pension fund accounts, brokerage accounts, etc., can also be held to the same withdrawal minimums to remain active. 

Key Takeaways

  • Dormant accounts are deposit and investment accounts that have not had any activity for a long period. What constitutes “long” is decided by each state.A person can reactivate a dormant account with its institution between the time it has been declared dormant and given over to the state.A dormant account becomes state property once numerous attempts have been made to locate its owner to no success. The state taking over customer funds from dormancy is called escheatment. Funds are still retrievable at this stage but without dividends or interest.

The main difference amongst these accounts is the allowable inactive period to pass before the account becomes dormant. In addition, different financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more offer different types of leniency. 

Generally speaking, though, checking and savings accounts tend to be the accounts that the bank closely monitors and then transforms to dormant.

Although it might seem like a corporate rule, the closing and transferring of funds from an account with dormancy is a federal requirement.

Financial institutions must transfer funds in dormant accounts to a state’s treasury under state law after the accounts have been stagnant for long periods of time. Each state has its limitation laws. 

Bank dormancy helps to prevent fraud. For example, the bank would deliver their statements to an outdated address if a person moves. It leaves them at risk of identity theft.

How Long Can A Bank Account Be Dormant?

In New York, accounts with no activity for three years become dormant. To keep them active, at the very least, a person must make a small deposit or withdrawal every year.  

Mississippi, on the other hand, has entirely different rules. For example, a checking account is dormant after five years of inactivity, 15 years for traveler’s checks, and seven years for money orders.  

The periods may differ, but the processes are generally the same. Once it identifies an account as dormant, the financial institution that holds it will report it to the state.

The state treasury then claims and collects any funds within the dormant account.

Before the collection and closure of accounts, financial institutions must make attempts to contact account owners. 

Can a Dormant Bank Account Be Reactivated?

In short, the answer is yes. A person can reclaim funds from a dormant account by contacting their bank.  

They will be asked to verify their identity as well as provide:

  • The account numberIdentificationAccount Holder nameAccount balanceAccount BalanceAccount Balance is the amount of money in a person’s financial account, such as a savings or checking account, at any given time. Furthermore, it can refer to the total amount of money owed to a third party, such as a utility company, credit card company, mortgage banker, or other similar lender or creditor.read moreProof that has access to statements

Depending on the length of dormancy, funds are usually retrievable. During that time, a bank deems the account dormant, and before it enters escheatmentEscheatmentEscheatment is a legal process in which the government takes control of assets unclaimed for a long time.read more, an account owner has rights to their money.

Escheatment Process of Dormant Accounts

Escheat is a law practice that transfers the property or money of a person who has died without anyone to claim it to the state. Similarly, the process of escheatment in banking is transferring the unclaimed property of these accounts to the state.

Once an account is dormant and active attempts have been made to locate the owner for a period of time (specified by each state), an accounting entryAccounting EntryAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry. read more is created in the state’s books. 

Former account owners can make claims against this and, if valid, can receive the account’s cash value after it’s become state property.

States regularly sell the securities and assets from such accounts, and giving cash value is common. Important to note: this does not include dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more or interest after escheatment.

Escheatment Resource

Several websites offer services where you can search to see if your account has become state-owned. In addition, there are both commercial and government sites. 

One non-commerical site is the National Association of Unclaimed Property Administrators. This site allows people to search if they have any accounts with dormancy under their name and social security number and how to get in touch with the administrator.

Each state also has its escheatment provisions and expirations as with the accounts.

Things to Consider

It is not in the best interest of any financial institution to keep these accounts on their books. After a long period of time, unclaimed money becomes a liability.

Those who expose themselves to possible identity theft make so the institution that holds their account as well. 

For this reason, it is much easier to transfer the funds to the state and get it off their books.

This has been a Guide to dormant account and its meaning. We discuss how it works, dormant account reactivation, time period, and escheatment resources. You can learn more from the following articles –

The account owner can request the bank to reactivate a dormant account. First, the bank would ask them to present several documents, including account number, identification, and other proofs. Then, the person usually has to do some transactions to ensure that the account is reactivated.

A dormant bank account can be closed by applying to the bank. The owner can transfer the account’s content to any other account, and then the bank will close the account. In most cases, the bank itself tries to find the holder, and if they can’t, they let the state know of the status of the account.

Banks continue to charge a maintenance fee for dormant accounts and other penalties. In addition, some banks would charge an extra amount for inactive accounts called dormant account fees.

  • Checking AccountDrawing AccountDeposit Accounting