One of the best things you can do with a savings account is forget about it. If you don’t think about it, you can’t spend it. It’s there when you need it, and it’s earning dividends the whole time.
However, like with most good advice, there can be a flip side. You don’t want to forget about your savings account so long that it becomes dormant. A dormant savings account is one that carries a low balance and has had no deposits in a long time. The exact length of time you have to leave an account alone before it is considered dormant varies from state to state, as does the definition of “low balance.” As a general guideline, accounts with less than $50 that have been inactive for more than two years are considered dormant.
While the definition of a dormant account can vary, their treatment is similar. Dormant accounts represent a cost to financial institutions, as they are required to keep records of the account and send statements and other paperwork. Often, those statements are returned due to incorrect addresses and they then require additional manual effort on the institution’s part. While these costs may seem small, they add up when involving hundreds or thousands of accounts.
To reduce and avoid future costs, financial institutions are permitted to close these accounts and transfer the funds to the state treasury department through a process known as escheatment. State treasury departments hold those funds, along with unclaimed tax refunds, payroll checks and other “orphaned” assets in an unclaimed property fund. Most states hold hundreds of millions of dollars in these funds.
This money isn’t lost, but it is difficult to access. To reclaim those funds, you’ll be required to complete a variety of forms and wait several weeks while your request is processed. It’s far more complicated than stopping by your credit union or ATM!
Avoiding dormancy can be a tricky challenge, especially if the savings is a rainy day fund or another infrequently used account. Fortunately, there are several steps you can take to keep your account out of dormancy.
1. Keep track of your accounts
It should go without saying that you want to know where all your money is at any given time. Fortunately, in an era of modern technology, that’s never been easier. Using apps like Mint or Personal Capital, you can monitor all of your accounts in one place. You can combine your work 401(k), your savings account and your credit card in one screen for convenience. That way, you’ll never forget about an account and risk dormancy.
If you prefer a less digital approach, you can keep your account statements in a file folder. Any lined sheet of paper can work as a ledger. The objective is to create a place where you can see all of your accounts and their balances. Be sure to include other members of the household in this discussion.
If you’ve got a teen with a savings account, make sure they record it as well. Ensure those statements are kept somewhere you know about. Many accounts go dormant because they’re forgotten about. It’s easy to see how a summer savings project or a well-intentioned New Year’s resolution can be abandoned.
2. Automate your savings
An account can’t go dormant if it’s getting transactions on a regular basis. If you’re putting even a small amount, like $5, into an account every month, it’ll never go dormant. You’ll always have access to it, and the rate of growth might surprise you. But who can remember to do that every single month, or would even want to have the burden?
The easiest way to to make it happen is to set up automatic transfers between your primary account and your savings. These don’t have to be large. You could start as small as a few dollars. This form of automatic savings will keep your account active and your savings full. That’s a win-win situation!
3. Clean up and roll over old accounts
If you’re the kind of person who creates different accounts for different savings goals, you might accumulate a dozen different accounts over time. It’s easy to forget to close your vacation savings account after you’ve paid for your vacation, or to clean out the last few dollars in your down payment savings account after you’ve purchased a new car. This is especially true if you’re not sure what your new savings goals might be. Letting those dollars sit might be the natural thing to do for a while. You might end up with a hundred dollars or more scattered through multiple accounts. Each of those accounts is at risk of going dormant!
One way to handle this problem is to make a general purpose savings account and consolidate your funds there once every few months or so. You can make it part of your rainy day money or use it to help pay down your personal debt. Putting that money to any purpose is better than letting it sit in a dormant account and risk being lost to escheatment or service fees.
The same is true for old retirement accounts. If you’ve changed jobs recently, it’s worth talking to a financial planner about how to roll over your old retirement account. There are many possible approaches for handling retirement funds from old employers, and all of them are better than doing nothing.
Whether it’s old or new, it’s still your money. Having money in an old account can be like finding a few dollars in an old jacket, or it can be like finding out you washed a pair of pants with money in the pocket. The difference is how quickly you act. Claim your money before it’s too late. Clean up your dormant accounts today!
Your Turn: In what ways do you use your savings accounts to better manage your finances? Have you ever had to go through a claims process on an abandoned account? What was the experience like?