Dormant Bank Accounts & Escheated Funds

There’s an estimated $80 billion in unclaimed money out there waiting to find a home and it’s probably worth the time and aggravation to see if any of it belongs to you.

The billions belong to people (or their heirs) who opened bank accounts, money market funds had valuables in safe deposit boxes, or – most likely – didn’t cash checks and forgot about any or all of them.

The money sits in a dormant account for a period of time, after which the state takes control of it through a process called “escheatment.”

But you can get it back.

The trick is finding out if you had a dormant account that was transferred to the state treasury. Claim systems are in place, but some states aren’t very good at helping you find your money.

“When a department had a dedicated marketing staff, there was a statistically significant increase in the amount of money distributed,” Darrin Wilson, a professor at Northern Kentucky University wrote in an academic paper on unclaimed money.

What Is a Dormant Account?

“Dormancy” means inactive for a long period of time. Think of bears hibernating or volcanoes not erupting for hundreds of years. It’s the same with bank accounts, only they don’t end their dormancy in a hail of lava.

Dormant accounts are those that haven’t had any deposits, withdrawals or other activity for a long time. The only thing that’s happened is interest being posted, which is an automatic function and not considered an “activity.”

You’d think people would keep better track of their money, but millions of consumers have forgotten accounts or didn’t realize they’d left money behind. Many account holders die, and their heirs don’t know there was money left behind.

When does an account with no activity officially become dormant?

That varies depending on the type of account and what state it’s in. For instance, checking, savings and brokerage accounts are considered dormant in Delaware after three years of no activity.

In California, it’s five years. In some states, it’s as little as 12 months and in others it can be 15 years.

Dormant vs. Inactive Accounts

When an account has no transactions for 12 months, it is considered inactive. If there is no activity for 24 months, it is deemed dormant.

Remember, system-generated activities like interest credits don’t count. A “transaction” is an activity initiated by the account holder like cashing a check.

What Happens to Dormant Accounts?

When an account officially becomes dormant, the bank doesn’t get to keep it. It must try to contact the account holder over a specified period of time that varies, depending on the state.

A final warning is usually issued one month before the account is turned over to the state. If no response is received, the funds are taken.

It’s not just cash in the account, however. Deposit boxes, uncashed checks, stocks, insurance claims and retail gift cards are also subject to transfer.

Once the state gets the funds, it puts them in its treasury, where it would pay for roads, prisons, schools, law enforcement, wildlife management, etc.

States hold onto securities for a limited amount of time then liquidate them. But if the account holder eventually comes forward and makes a rightful claim, the state must return the cash value of the account to that person.

Dormant Account Fees

Banks are in the business of making money, and that doesn’t change when an account is dormant.

They continue charging monthly maintenance fees and other penalties. The average monthly maintenance fee in 2019 was $9.60, according to MyBankTracker.com., though it can be as high as $25.

Some banks lower their fees when an account is deemed inactive or dormant. But most checking accounts don’t accumulate much interest, so fees could severely eat into a low-balance account.

What Are Escheated Funds?

Escheatment is the fancy word for transferring unclaimed money to the state. The U.S. system can be traced to feudal England, where any land held by tenants was returned to the feudal lord when the tenant died.

That’s how the monarchy came to own all the land in England. In the U.S., the state took the place of the sovereign.

But enough history. The important thing to know is you can get your escheated property back.

Recovering Unclaimed Funds

There is no statute of limitations on claiming funds. That’s good, considering how much lost money is out there.

The first step in recovering escheated funds is finding out whether you have any to recover. If it turns out you do, the reimbursement process varies from state to state.

In all cases, you’ll need a government-issued ID, proof of Social Security number and proof of current address (like a utility bill).

Most states let you file a claim electronically if it’s under $1,000. If it’s more, you might have to mail in notarized documents.

If everything’s in order, you’ll get a check. The hardest part is that first step, simply finding out if you have money coming to you.

States increasingly depend on escheated funds to balance their budgets. They don’t hide those funds, but the search process could be easier.

There is no national database to refer to.  The Federal Deposit Insurance Corporation has a website listing state-by-state websites: https://www.fdic.gov/bank/individual/failed/unclaimed-property-states.html, but some of links are not functional or connect you to health insurance or other sites.

If you can’t find your state’s escheated claim website, check with your bank or call the state treasurer’s office. There are databases like MissingMoney.com, but nine states don’t participate.

California is one of them, and it has almost $9 billion in unclaimed funds. Like all states, the money is put to use while its being kept.

As helpful as escheated funds are to a state’s treasury, it’s safe to say most claimants can think of a better place for that money:

Back in their bank accounts where it belongs.