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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.


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.

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  |     |   Comment #1
Can you share what you plan to do with the money? What is the best option right now as a deposi account?
  |     |   Comment #2
Question: is a bank or credit union allowed to deduct funds from your CD to pay for an inactivity fee on another share account? In other words, say I have a 5yr CD at a CU/Bank where all I have is the minimum $5 in the required share account to belong to the CU. And I open up a 5yr, $2000 CD. If there's no activity on the share savings, is the CU/Bank allowed to deduct their $15 or $25 (or whatever) non-activity fee from the CD? Because there are no funds in the share savings other than the required $5 that you must have to join, what happens in that case?

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..

  |     |   Comment #3
Most banks and cu will send a written notice, regarding a inactive account, plus request a $5 deposit to cure the problem.  U.S. Senate CU (best deal last Sept), on opening the account, stated (verbal) you must make a deposit to the share account each year or they have the option of closing the cd (at 3.33%), that would hurt.  They were nice enough to be out front on that requirement.
  |     |   Comment #4
My own experience with Patelco was that they deducted the inactivity fee from the share savings until it reached zero, and then they stopped withdrawing as there was nothing more to withdraw from.
  |     |   Comment #5
I had an incident with Pacific Transportation FCU. They mark an account as dormant if there is no transaction in 12 months. I had opened it previously for a CD. But that CD matured, and unfortunately their rates had gone way down. I wanted to keep my membership open for future reference -- under the once a member alwasy a member rule -- so I would not have to pay to join a group again to qualify and to pay their membership fee. I thought I might like to open a CD there again sometime.

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. 
  |     |   Comment #6
It seems like my penfed $5 accounts adds 1 cent in interest every so often. In the past, I transfered that penny to my credit card bill.


But, I havent been using my penfed credit card. Been loading up on gas cards when grocery stores have deals.
  |     |   Comment #7
Senate is only 6m to inactive status to all those that opened last NOV when the=y had the3 % cds going
  |     |   Comment #8
Don't count on an institution sending you a notification.  We had an account with SafeAmerica Federal Credit Union and they just started taking money out of my share account for inacctivity.  I only discovered this accidently when I was checking my balance.  Of course I closed the account but I lost some money. 

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