What is a dormancy fee?

Bank accounts and prepaid cards make it easy to use money to buy goods. While bank accounts and prepaid cards both provide many different advantages, you could receive a dormancy fee. You may receive a small fee after a few months of inactivity. 

Even minimal usage of your bank accounts and prepaid cards can prevent a dormancy fee. However, it’s good to know what they are and why they exist in the first place.

How does a dormancy fee work?

Banks and card issuers can charge a dormancy fee if your cards or accounts are in a state of inactivity. The dormancy fee encourages people to spend their money. 

You don’t have to spend money every single week to evade dormancy fees. Logging at least one transaction every six to eight weeks should be enough to avoid the fee. But banks and card issuers must let you know if they charge dormancy fees, as well as the time window before these fees are imposed, so be sure to look into the policies for your banks and cards.  

What are dormancy fees applied to?

Dormancy fees primarily apply to bank accounts and prepaid cards. At one point in time, the dormancy fee only applied to credit cards, but the Credit CARD Act ended this practice. Dormancy fees encourage people with bank accounts and cards alike to spend money. 

A few transactions from a bank or prepaid card won’t hurt most people. However, enticing people to spend with their credit cards can lead to significant debt. Policymakers believed credit card users shouldn’t be compelled to spend just to avoid dormancy fees, so they got rid of that fee for credit cardholders in 2009.

Why do banks charge dormancy fees?

Banks and prepaid card issuers make money from your transactions. Anyone who stops transacting cuts off revenue from the banks and card issuers. These institutions still want to collect a fee for housing your money. The dormancy fee kicks in and allows them to profit from storing your money.

Can a dormant bank account be reactivated?

You can reactivate a dormant bank account. Schedule an appointment with your local branch or make a call on the phone. Each bank has different rules on how to reactivate a dormant bank account. Review those rules or ask about them so you can get your bank account back in action.

Average dormancy fees

Average dormancy fees vary across lenders. You should review statements each month and check for any dormancy fees. You can also read through the terms and conditions. Banks and prepaid card issuers must state if they charge dormancy fees and how they add up.

The average monthly dormancy fee is approximately $9.60, but some institutions may charge a dormancy fee of $25 or higher.

How to avoid inactivity fees

Inactivity fees can add up. However, you can easily avoid these fees without breaking the bank. These strategies will help you avoid inactivity fees.

Make regular deposits or withdrawals

Regular deposits and withdrawals show activity across your bank accounts. You can space out deposits and withdrawals to increase your account activity.

Instead of making a lump sum deposit, you can make weekly deposits to your bank. Employees can put a percentage of each payment in the bank. You don’t need to manage deposits and withdrawals like a day trader, but weekly deposits will maintain consistency and help you build your wealth over time.

Close inactive accounts

Some people create many bank accounts throughout their lifetimes. They don’t want to manage all of those accounts and may forget about some of them. 

People with several bank accounts can close some of them to avoid dormancy fees. People switch banks for various reasons, but you should deactivate old accounts you don’t plan to use. 

Bank account holders shouldn’t rush to deactivate old accounts after making a switch. However, you may want to pull the plug if you haven’t used a bank account for over a year with no plans on returning.

Keep your contact info up to date

Some banks will reach out before charging a dormancy fee. They may inform you that a single transaction can prevent the fee. Banks will reach out using the contact info you provided. If you recently changed your phone number or email address, the bank can’t reach you. 

Check your contact info across your bank accounts to ensure it is accurate. Correct contact info helps you receive warnings when a dormancy fee is on the way.

Make a transaction after receiving a dormancy fee

Some people will still receive a dormancy fee. However, banks can continue charging you each month you remain inactive. The best way to protect yourself from compounding dormancy fees is by making a transaction. 

Even if you move $1 into your account, that transaction demonstrates activity. Banks then cannot charge dormancy fees each month. They would have to wait for you to have zero transactions over the predefined time frame.

Monthly subscriptions

Some people forget about their bank accounts and prepaid cards, especially as these assets accumulate. Monthly subscriptions force you to make transactions across your accounts. 

You don’t have to load up on subscriptions. A single subscription per bank account and prepaid card is sufficient enough. You’ll record at least one transaction every 30 days and shield yourself from inactivity fees in the process.

Some financial activity is all you need

You don’t have to rapidly deposit and withdraw money to avoid dormancy fees. Some financial activity will suffice. You can automate your financial activity with monthly subscriptions and recurring investments. As long as you put enough money in the bank, those actions will take place and help you avoid dormancy fees.