Frozen Accounts Due To Account Inactivity

Savers often come across a bank or credit union that penalizes them for account inactivity. A reader just emailed me about his experience with his TIAA Direct savings account. One day he found that he was not able to transfer funds into or out of his account. When he called, the TIAA Direct rep told him that the account had been locked after six months of inactivity. Fortunately, they did not charge him any inactive fees. So if you have a TIAA Direct account that is no longer active, you should either close the account or make sure you keep it active. One way to keep it active is to initiate transfers into or out of the account at least once every six months.

Freezing accounts when they’re inactive isn’t just done by banks. As I described last November, my share savings account at one of my credit unions was labeled as inactive and was frozen by the credit union. I found out about this when I tried to establish a link to the account from my Discover Bank account. I was planning to use this link to initiate ACH withdrawals when my credit union CD matured. The linking process failed due to the account being frozen. To re-activate my credit union savings account, I had to send the credit union a service request form and a copy of my driver's license. Once it became active again, I tried to redo the Discover Bank link process, but that failed. Discover Bank then required written proof of my ownership of the credit union account.

For both this credit union example and the example with TIAA Direct, an inactive account can create a lot of hassles even when you aren’t hit by fees. In the past, I have been hit by monthly fees that started when the accounts became labeled as inactive. Both cases were at credit unions, and the fees started after one year with no member-initiated transactions to the accounts.

Each time you open a bank or credit union account, you should make sure you know the answers to the following questions. If you have multiple accounts at one institution, don’t assume that activity in one account will meet activity requirements in another.

• When is an account considered inactive? 3 months? 6 months? 1 year?
• What happens when the account becomes inactive? monthly fees? account freeze?
• What is considered an activity? Does an ACH transfer count?
• What is the escheatment period? This is when the bank turns over the account to the state. The period can depend on state laws.

You should also be aware that these policies can change, and you may not be sent a change notice. DA member me1004 described the problems that can happen when a credit union changes its account inactivity policy.

To prevent account inactivity fees and having your account frozen, it’s a good idea to regularly review the latest rules. Unfortunately, this isn’t always easy. Last year I investigated the account inactivity policies at PenFed. The policies were not clearly described in PenFed’s online disclosures, and I didn’t get clear answers from a PenFed CSR. I had to get help from my PenFed contact.

One useful rule of thumb to avoid account inactivity is to make sure you initiate some account activity (such as initiating a transfer) at least once for every six months. You should also consider closing the account. That’s one easy way to avoid having to worry about changing policies and inactivity fees. Just be aware of the possibility of account closure fees.