Dormant Bank Account Laws: State Regulations & Escheat

When you do not use a bank account for an extended period of time, your bank can assess a dormant account fee. These fees serve two purposes: to generate revenue for the bank and to help banks comply with state abandoned property laws. Every state has laws that require banks to surrender funds held inside dormant accounts to the state after a specified period of time.

Escheat

In ancient times, the state assumed control of property when land owners died and the monarch could award the land to someone other than the previous owner's heirs. In the United States, every state has some kind of escheat laws that enable the state government to assume control of property owned by private individuals, but only if the owner seems to have abandoned the property. Banks and credit unions must abide by abandoned property laws, but escheat laws cover all kinds of property and are not just specific to banks.

Reporting

Most state governments require banks to complete annual reports that contain details of inactive or dormant bank accounts. Rules vary from state to state, but in many places an account becomes dormant if the owner does not transact on it for six months or more. Accounts remain on the dormant account report until either the owner transacts on the account or until the period of inactivity extends long enough for the account to meet the state's criteria of abandoned property.

Contact

Prior to surrendering account proceeds to the state, the custodian bank must make every effort to contact the account holder. You should make sure that you update your personal details such as your address and phone number whenever you move so that your bank can easily contact you to resolve dormant account situations. To discourage account holders from abandoning funds, banks can charge monthly dormant activity fees; on an account with a small balance, these fees could drain the entire balance of the account.

Time Frames

In some states, such as Utah, funds in bank accounts are classified as having been abandoned after three years of account inactivity. In other states, such as New York, funds are not regarded as having been abandoned until five years after the last account activity. However, when the state assumes control of your money, you can still reclaim it by filing a claim with your state's abandoned property fund; this action normally results in the return of your funds within a few months.