Preventing Accounts From Being Labeled Inactive - Review of PenFed's Policy
Last month I described the issue that I had with my credit union. A CD that I have with that credit union is maturing in January. As I was preparing to close the CD at maturity, I learned that my share savings account at that credit union had become inactive and frozen. This could have complicated my plans of closing the CD if I had not noticed it. This is one reason that it's important to make sure your accounts remain active. Account inactivity can also lead to fees, and if the account remains inactive for enough time, you run the risk of escheatment.
Account inactivity is something that can easily impact many savers who open CDs at several credit unions. Most all credit unions require members to maintain a savings account. You should not assume that your CD at the credit union will keep the savings account active.
I thought it would be useful to review the account inactivity policies at some of the popular credit unions where savers are likely to have CDs. In the last week, I've investigated the account inactivity policies at Pentagon Federal Credit Union (PenFed). I've been posting on PenFed's competitive CD rates since 2006. I'm sure many readers have CDs and IRA CDs with them.
PenFed's Account Inactivity Policy
I wasn't able to find a good description of account inactivity policies at PenFed's website, so I emailed PenFed's member service representatives. The answers that I received were a little confusing, so I emailed my contact at PenFed and she checked with PenFed's compliance team. Here's a summary of what I was told:
- Share Accounts become inactive at 11-months
- Inactivity status can be changed with just a call (member-initiated deposits/withdrawals also count as activity)
PenFed's Policy and Procedures state accounts are inactive at 11-months. The inactive status really is not an issue unless the only account is a Share account and there is no activity up to the time of escheatment. Certificates by their nature can fall into inactive status, but nothing happens.
A Share account being inactive just means the clock is ticking toward escheatment. An account becomes escheated (this varies from state to state) at a minimum of five years. A member will only incur a fee if he/she has a bad address on file and the account is inactive. That fee is only assessed on the Share account, and the fee is $15 quarterly.
An account remains or becomes activated by “member-initiated” activity. Earning dividends or having fees assessed are not member initiated. A member can call or email PenFed, and ask that PenFed updates the accounts. Or, if the member has a Share or checking account, the member can make transfers funds between the two accounts to reactivate the status. This is assuming the accounts in question have balances. If the account has a zero balance or is overdrawn, those accounts may be closed.
Summary
In my last post, DA reader pearlbrown provided the following useful rule of thumb to avoid account inactivity. This works for PenFed and at most financial institutions:
a 6-month rule of thumb has worked well to help avoid problems with dormancy rules. That is, I make sure each institution where I have an account has some activity every 6 months, even if it is just a modest deposit to the savings account. The rule of thumb is also useful for use with credit cards - each one is used for a charge at least every 6 months, even if it's only a cup of coffee.
One possible gotcha is if the institution doesn't count an ACH transfer as an activity. Some institutions don't count ACH as an activity for the dormancy rules. Second, some institutions will label an account inactive before 6 months. I've seen the time be as little as 3 months.
Account inactivity policies are important for savers, and unfortunately, institutions often don't clearly describe their policies. To avoid having your account frozen or being hit by inactivity fees, make sure you learn the account inactivity policies of all of your banks and credit unions.
Likewise, say you don't have a CD, but only just a share savings account by itself, with only the $5 in it necessary to join (just being dormant). I joined PenFed recently just because a friend did, but unlike my friend, I don't plan to open up a CD anytime soon there (as I have my funds elsewhere, and it will be at least 2 years before those funds mature elsewhere). I just thought "might as well join them now, it doesn't hurt." But what happens if 2-3 years go by, and all I have is the required $5 in the account at PenFed with no other accounts (No CDs or anything) and I forget to ACH 5c into it each 11 months. Will they close the account? Give it a negative balance so if I want to stay with them I have to pay? Or since there's only $5 there, they can't collect the fee? This is kind of important to me..
Thanks
They changed some rules. I was never notified, although they claimed they had sent a notice to all members -- well, not to me, I have everything they ever sent me. They were trying to get everyone to go over to electronic statements. Somehow I ended up as that -- I never actually asked them to do that -- and I was not getting my monthly statement in the mail. And its very easy to lose track of whether you made a transaction six months ago, or nine months ago, or 12 months ago, or when. Since I wasn't using the account, I didn't even need to look for a monthly statement, and I didn't realize it.
By the time I did, I went online to look at my account -- but I could not even get into it. Turned out they had been fining me every month for several months for no activity -- and my balance was marked as way below zero! They had taken my depoist and even when my account hit zero, they did not close it, they didn't notify me, they instead just kept marking up more against me. I found this all out after phoning in to find out why I could not log into my account.
I raised hell, of course, since I had never been informed, and since they quietly just stopped sending my monthly statement, I hadn't even seen anything. They said I could reinstate all, but I would have to pay all the negative balance and bring my share savings up to minimum. They just would not waive the penalties or give me back my deposit.
I had to go up the ranks. The supervisor refused to waive the penalties. The savings manager refused to waive the fees. This stretched over days. I finally went to the CEO. He acted like he couldn't understand what the fuss was, of course they would waive the fees, and he even agreed to give me back my deposit. So, while I will spare you the other details that were ****ed up in the process, I did get it reinstated and got my $5 share savings balance back too. But that is not their policy! And now I know I am on electronic statements (what a pain in the neck -- I will never be able to keep up with that like I can with a mailed statement!)
But it should not take all that, and certainly not under such circumstances where it happened all behind my back. So watch out -- or it can cost you a bundle. If I actually had a significant amount of money in my account, and the CEO had not waived all, or if I weren't resourceful enough to get to him, I could have lost a lot.
Regarding the post above that asked whether they could take the fees from a CD if that is the only account there other than the share savings: I have seen disclosures that say they can take such penalties from any account you might hold with the institution, so certainly if such a clause is in the disclosures, they can take it from a CD. (Whether they can take it without such a clause, I don't know.) And possibly that would also serve to break the CD and bring on early closure penalties on top of it! Some institutions are more aggressive than others.
But, I havent been using my penfed credit card. Been loading up on gas cards when grocery stores have deals.