Dormant Bank Account Rules & Escheated Funds

There’s an estimated $58 billion in unclaimed money out there waiting to find a home and it’s probably worth the time and aggravation to see if any of it belongs to you.

The billions belong to people (or their heirs) who opened bank accounts, money market funds had valuables in safe deposit boxes, or – most likely – didn’t cash checks and forgot about any or all of them.

The money sits in a dormant account for a period of time, after which the state takes control of it through a process called “escheatment.”

But you can get it back.

The trick is finding out if you had a dormant account. Claim systems are in place, but some states aren’t good at helping you find your money.

Because of that, a business has arisen to connect people with these funds. Entrepreneurs advertise for and then assist people who are owed money they didn’t know about. In exchange, the entrepreneurs manage some of the assets and produce significant income of their own.

In recent years, the total amount in dormant accounts and escheatment has dropped from $80 billion to $58 billion, but still, we’re not talking about nickels and dimes here. Those numbers should convince you that it’s worth the effort to find out if you have money waiting in a state’s vault somewhere.

“When a department had a dedicated marketing staff, there was a statistically significant increase in the amount of money distributed,” Darrin Wilson, a professor at Northern Kentucky University wrote in an academic paper on unclaimed money.

What Is a Dormant Account?

Dormant accounts are those that haven’t had any deposits, withdrawals, or other activity for a long time. The only thing that’s happened is interest being posted, which is an automatic function and not considered an “activity.”

Today, there are online services and apps to help people keep better track of their money. That wasn’t always so, and people could lose track of assets. Sometimes a person died without including all of their financial information in their will. Often, people died without even writing a will, and their bank accounts and other assets became dormant.

How Does an Account Become Dormant?

Time and inactivity are the recipe for a dormant account. The process goes like this:

1. No activity — deposits, withdrawals, or transfers — for one year. That is not a long time. Perhaps you ignore your emergency savings account while actively managing your day-to-day finances. That can happen. So can becoming ill or dying without shifting control of your account to an heir.
2. The bank or other institution flags the account as inactive. Nothing is happening, not even a single deposit, withdrawal, or transfer to pay for a Starbucks latte. The bank takes note and declares it a dormant bank account.
3. The financial institution begins charging an inactivity fee. Some banks charge zero, but others slap on fees of $5 to $15 per month. Look for these fees on your monthly bank statement, or on your bank’s app.
4. After the first year, there’s no account activity for another two years. The timing varies by state. In California, Connecticut, and Illinois, for example, most bank accounts go dormant after three years. In Delaware, Georgia, and Wisconsin, five years must pass.
5. The financial institution changes the account’s status from inactive to dormant. The bank will try to contact the account holder (a problem if the person moved and didn’t update their address, or if they died) and allow a certain amount of time for a response.
6. The financial institution closes the account and sends any leftover funds to the state. This is an automatic legal process called escheatment. But the story is still not officially over. You do have options if your assets have been transferred to the state due to a forgotten or lost bank account.

Dormant vs. Inactive Accounts

When an account has no transactions for 12 months, it is considered inactive. If there is no activity for 24 months, it is deemed dormant. Automatic deposits into an account do not count as an “activity” that keeps the account from being declared dormant.

An active deposit into an account counts as activity that will prevent the account from being declared dormant. Once so designated, though, such deposits can no longer be made.

Remember, system-generated activities like interest credits don’t count. A “transaction” is an activity initiated by the account holder like cashing a check.

What Happens to Dormant Accounts?

When an account officially becomes dormant, the bank doesn’t get to keep it. It must try to contact the account holder over a specified period of time that varies, depending on the state.

A final warning is usually issued one month before the account is turned over to the state. If no response is received, the funds are taken.

It’s not just cash in the account, however. Deposit boxes, uncashed checks, stocks, insurance claims and retail gift cards are also subject to transfer.

Once the state gets the funds, it puts them in its treasury, where it would pay for roads, prisons, schools, law enforcement, wildlife management, etc.

States hold onto securities for a limited amount of time, then liquidate them. But if the account holder eventually comes forward and makes a rightful claim, the state must return the cash value of the account to that person.

Dormant Account Fees

Banks are in the business of making money, and that doesn’t change when an account is dormant.

They continue charging monthly maintenance fees and other penalties. The average monthly maintenance fee in 2021 was $10.99, according to MyBankTracker.com., though it can be as high as $25.

Some banks lower their fees when an account is deemed inactive or dormant. But most checking accounts don’t accumulate much interest, so fees could severely eat into a low-balance account.

What Are Escheated Funds?

Escheatment is the fancy word for transferring unclaimed money to the state. The U.S. system can be traced to feudal England, where any land held by tenants was returned to the feudal lord when the tenant died.

That’s how the monarchy came to own all the land in England. In the U.S., the state took the place of the sovereign.

But enough history. The important thing to know is you can get your escheated property back.

How to Recover Unclaimed Funds

There is no statute of limitations on claiming funds. That’s good, considering how much lost money is out there.

The first step in recovering escheated funds is finding out whether you have any to recover. If it turns out you do, the reimbursement process varies from state to state.

In all cases, you’ll need a government-issued ID, proof of Social Security number and proof of current address (like a utility bill).

Most states let you file a claim electronically if it’s under $1,000. If it’s more, you might have to mail in notarized documents.

If everything’s in order, you’ll get a check. The hardest part is that first step, simply finding out if you have money coming to you.

States increasingly depend on escheated funds to balance their budgets. They don’t hide those funds, but the search process could be easier.

There is no national database to refer to. The Federal Deposit Insurance Corporation has a website listing state-by-state websites, but some of the links are not functional or connect you to health insurance or other sites.

If you can’t find your state’s escheated claim website, check with your bank, or call the state treasurer’s office. There are databases like MissingMoney.com, but nine states don’t participate.

California is one of them, and it has almost $9 billion in unclaimed funds. Like all states, the money is put to use while it’s being kept.

As helpful as escheated funds are to a state’s treasury, it’s safe to say most claimants can think of a better place for that money: Back in their bank accounts where it belongs.

Here are some good places to begin your search:

• State-held unclaimed property: Visit the National Association of Unclaimed Property Administrators’ Unclaimed.org for a map with links to each state’s program.
• Life insurance: For benefits not held by the state, check the insurer’s site directly. For example, MetLife has an online search.
• Pensions: For Pension Benefit Guaranty Corp. benefits, visit the agency’s online search directory.
• U.S. savings bonds: More than $26 billion worth of mature savings bonds remain unredeemed, according to the U.S. Department of the Treasury. To search the database, visit TreasuryHunt.gov.

Consequences of a Dormant Account

Having an account go dormant can impact your ability to access and use the funds, which means:

• No withdrawals at ATM or branch
• No address changes
• No online banking transactions
• You cannot add or delete a joint account holder
• No investment transactions
• No ATM or debit card renewal
• You might wait months or even years to reclaim escheated funds from the state
• There is an increased risk of fraud, with criminals accessing your escheated funds

Should You Close a Dormant Account?

The simplest answer is Yes! You should close a dormant account!

Not only do you lose access to funds in the account and open yourself up to fraud, but monthly fees can nibble away at the account’s balance. There is generally no good reason to allow an account to remain dormant.