An inactivity fee is one that sneaks up when you least expect it. Maybe you’ve just gotten your spending under control. In fact, you haven’t charged anything to your account for a few months now. And yet, you’re charged a fee.
Perhaps you forgot about a savings account that you had opened when you lived in that one state — was that two moves ago? And yet, you’re charged a fee.
Or maybe a loved one had passed, leaving behind an account in your name. You had no clue. Of course now you know, now that you’re getting a letter threatening to charge you a fee on an account that you didn’t even know existed.
There are a number of ways that an inactivity fee could arise, and in each instance, the fee proves to be a real pain. So we’re here to break down why exactly you’ve incurred one, how much it’s going to cost you, and most importantly, what you can do to avoid it.
Unfortunately, an inactive account can rack up fees as much as an excessively active account can. If you don’t deposit, withdraw, transfer, or conduct any other action on your account for an extended period of time, your financial institution can tack on an inactivity fee, also known as a dormancy fee, as quickly as a few months.
Inactivity fees can occur any time an account is left untouched. This typically happens when someone chooses not to use an account, forgets the account exists, or unknowingly inherits the account. The fees can be applied to a wide range of account types, including checking accounts, savings accounts, and credit cards.
Not all financial institutions charge inactivity fees, but the ones that do typically run $5–$15 each month after a certain period of inactivity. For instance, if your institution begins charging inactivity fees after four months, you can expect to receive a fee on the fourth month, fifth, sixth, and so on until you reactivate your account.
To reactivate your account, you’ll have to make a deposit, withdrawal, transfer, or contact your institution to find out what your options are.
Your institution will attempt to contact you. However, if your account remains inactive for a considerable amount of time, the institution could charge you an additional escheatment fee before transferring the remaining account balance to the state. At this point, it may be more difficult to retrieve the funds, but certainly not impossible.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 largely restricted how and when credit card issuers are able to charge credit card holders inactivity fees. This, in part, helps individuals who’d like to keep their account open for emergencies but don’t use their account on a regular basis.
Under the new federal regulation, institutions are still able to charge inactivity fees on standard credit card accounts. The real danger comes if your account remains inactive for an extended period of time.
Because the issuer is not profiting off regular transactions or interest on your account, they could decide to cancel your credit card. For you, this could mean loss of rewards and potential damage to your credit score.
So despite the protections of the Credit CARD Act of 2009, you still must be as vigilant as ever to ensure your account doesn’t fall inactive.
Whether you haven’t conducted activity on your account intentionally or unintentionally, you’ll find out about the fee soon enough, one way or another. Luckily, there are small actions you can take to set that account active again, and through hardly any effort on your part.
To avoid fees on checking or savings accounts, make regular deposits or withdrawals.
If this is your only checking or savings account and it’s essential that you keep it open, there are a few easy transactions you can do to keep the account from falling inactive. Allocate all or a portion of your paycheck to direct deposit into the account. Schedule a recurring payment to be withdrawn from the account. Or set up a recurring transfer into or out of the account each month. You only have to conduct a transaction before inactivity triggers the fee, which depends on your financial institution’s fee schedule.
Shift the money to a more active account.
If you prefer not to deposit, withdraw, or transfer money into or out of the account, ask yourself: Do I really need to keep this account open? And if not, do you have another account that you could transfer the funds to? There’s no sense in leaving an account open with fees eating away at the balance, especially if you have another active account where the funds could be kept safe and sound.
To avoid fees on credit cards, make small, occasional charges.
If you’re keeping a credit card open for emergency situations but don’t want to rack up a balance, just charge gas or groceries to the card every once in a while to keep the card from going inactive. If you keep the balance low enough and feel comfortable linking a checking account, you can set up auto payment to handle the bill each month so you won’t have to keep track of payment deadlines.
Consider canceling the credit card.
If you can’t deal with the stress or temptation of having an open credit card, you can always cancel. But before canceling, you should weigh the pros and cons. Canceling will not only do away with any perks, rewards, or peace of mind knowing you have a line of credit available for emergencies, it could also impact your credit score. Your credit utilization, which is determined by your total available credit, as well as your credit history length make up 45% of your overall credit score. Canceling a credit card could cause your score to dip; however, your score could always bounce back so it’s best to consider the consequences based on your unique situation.
Keep your address and contact information updated.
After a certain period of dormancy, your bank will reach out to you before charging an inactivity fee or canceling your account altogether. If your address and contact information are not up to date, you might not receive the notification and you’ll end up getting charged the fee.
Inactivity fees are a real pain, and can pop up when you least expect, or worse — on accounts that you didn’t even know you had. The easiest way to avoid inactivity fees is to regularly audit your spending habits and accounts to determine whether or not they’re all worth keeping open.
For checking and savings accounts, you can always set up regular deposits, withdrawals, or automatic transfers to keep your cash flowing. With credit cards, you can charge very small amounts to the card every once in a while to stay in good standing.
If you decide the upkeep isn’t worth it, consider consolidating your money into one account where you can more easily stay active, or cancel the account altogether. If you decide to cancel your credit card, though, make sure you weigh the pros and cons before pulling the trigger.
Finally, so you never miss a bank-related notification, make sure your address and contact information is up to date. When in doubt, contact a customer service representative of your financial institution to learn more about their policy on inactive accounts.
Cushion helps you waste less money, save more, and live a financially healthier life. We monitor your bank and credit card accounts 24/7, find and alert you about pesky fees, let you know which fees are negotiable, which banks are cooperative, and can even automatically negotiate on your behalf.* To date, Cushion has secured customers more than $11 million in bank and credit card fee refunds—and we’re just getting started.
*Cushion only negotiates fees with high refund odds. We cannot guarantee any negotiations, a regular frequency of negotiations, or fee refunds—your bank makes the final call.