After the dormancy period, which varies by state, dormant accounts become the unclaimed property of the state. Accounts that can become dormant include checking and savings accounts, brokerage accounts, 401(k) accounts, pension fund accounts, and other accounts for financial resources.
After enough time has passed the account can be deemed unclaimed property. State law can dictate when a bank account is considered to be dormant and what happens to the money in it. A typical time frame is three to five years, though again, the rules can depend on where you live.
If a family member has passed away and left money in an account, you may have the right to the funds of the account registered in their name. You'll only be able to reclaim funds if the account is classed as dormant – meaning it's been inactive for 15 years.
According to rules, if a bank account remains inactive for 10 years, money gets transferred to the RBI's Depositor Education and Awareness (DEA) Fund every month. The important point to note here is the unclaimed money earns interest at rates specified by the RBI, not at the rate at which the deposit was made.
Dormant Account
Generally, a bank considers an account “abandoned” if the account holder fails to initiate any activity over a three- to five-year period, or if the account holder hasn't contacted the bank during that time. The bank is usually required to contact the account holder if it decides to close the account.
You can close a dormant account, and you should do so. Otherwise, the money will slowly get eaten away by fees, including dormant account fees.
Inactive accounts that haven't been accessed for extended periods are more likely to be compromised due to password reuse and lack of multifactor authentication.
Nonetheless, in cases where an account has remained dormant for more than a decade, the bank might have transferred the remaining balance or unclaimed deposits to the Reserve Bank of India's Depositor Education and Awareness Fund. To claim the funds from this fund, you will need to establish contact with the RBI.
What happens when a bank account is declared dormant? When an account becomes dormant it is closed down and the money is moved to a central fund that is used to contribute to various good causes.
If there have been no transactions in a savings or current account for more than two years, the account will be considered inactive or dormant. The accounts that have not been used for more than two years will be noted by banks and kept in different ledgers.
If no transactions are made to or from an account over a 12-month period, an account is classed as inactive. After this time, we freeze the account to prevent any risks from fraud, or if the balance is nil, we automatically close it.
If you have a bank account with a minimum balance requirement that you've stopped using altogether, consider closing it. The last thing you need is for an automatic payment you set up long ago to be debited out of the account, leaving you below the minimum (or worse, overdrafting your account).
If an account becomes dormant, you won't be able to issue cheques, renew your ATM/ Debit Card, request to change address or carry out any transaction through ATM, Internet Banking or Phone Banking.
Accounts get blocked if left inactive for 6 months. One needs to submit fresh KYC documents to reactivate it. If the balance falls below the minimum required for the concerned account type, applicable non-maintenance charges will be debited. Beyond a period of 10 years, all unclaimed deposits are remitted to RBI.
Generally, an abandoned account is one for which there has been no customer-initiated activity or contact for a period of three to five years. States' abandoned-property programs require banks to turn over the funds of such bank accounts to the custody of the state treasurer.
While the exact timeframes and policies can vary among financial institutions, generally, an account is considered inactive after 12 to 24 months of inactivity, while dormancy typically sets in after a longer period, often exceeding two to five years.
A dormancy fee, also known as an inactivity fee, is charged when there's no activity on an account for a certain period of time. After a specified amount of time that varies by state, banks must escheat the funds of inactive accounts, meaning they're required to turn the funds over to the state.
To reduce fraud, banks convert accounts that have been idle for long into dormant accounts. You cannot make payments, transfer money, make withdrawals, and even log into your account when it has been declared dormant.
If your account has a zero balance when it's closed, it won't have an effect on your score. However, if you close the account when it has a negative balance, the bank may either send your account to a collection agency or come to a default arrangement with you.
Understanding Dormant Accounts
Besides checking and saving accounts, other types of accounts can also become dormant accounts after being inactive for a certain period. Examples include pension fund accounts, 401(k) accounts, brokerage accounts, and other accounts carried by financial institutions.
Your bank account could become dormant if you make no transactions for a period of time. At that point, your bank might charge you an inactivity fee or close your account. In some cases, your funds could end up being turned over to your state.
An inactive account cannot be used to avail bank services like internet banking, request debit cards/cheque books, etc. Furthermore, you will be unable to alter your contact number, address, or email address if your account becomes dormant.
If you have a bank account with a minimum balance requirement that you've stopped using altogether, consider closing it. The last thing you need is for an automatic payment you set up long ago to be debited out of the account, leaving you below the minimum (or worse, overdrafting your account).
If there have been no transactions in a savings or current account for more than two years, the account will be considered inactive or dormant. The accounts that have not been used for more than two years will be noted by banks and kept in different ledgers.
Nonetheless, in cases where an account has remained dormant for more than a decade, the bank might have transferred the remaining balance or unclaimed deposits to the Reserve Bank of India's Depositor Education and Awareness Fund. To claim the funds from this fund, you will need to establish contact with the RBI.