Dormant Savings Accounts Risk Closure and State Seizure Despite Earning Interest
CHICAGO, Ill. — Many Americans trust that their savings accounts, especially those held at credit unions or banks, are safe and steadily growing with interest. However, recent incidents reveal a troubling practice: financial institutions are closing accounts deemed inactive, even when those accounts continue to earn interest, and sending the funds to state governments under escheatment laws.
Carol Roth, a financial commentator, highlighted the case of an Illinois retiree whose six-figure savings account was abruptly closed after months of inactivity, despite monthly interest deposits. The credit union informed her that the account was classified as dormant and subsequently closed, with the balance transferred to the state treasury. This process, known as escheatment, occurs when financial institutions hand over unclaimed property to state governments after a period of inactivity.
While many savers assume that regular interest payments constitute account activity, banks and credit unions often have strict definitions of what qualifies as activity. According to the Federal Deposit Insurance Corporation (FDIC), inactivity periods vary by institution but typically range from three to five years before an account is considered dormant. Once classified as such, institutions may close these accounts and remit the funds to the state under unclaimed property laws.
The National Association of Unclaimed Property Administrators reports that states collectively hold billions of dollars in unclaimed assets, including savings accounts, stocks, and insurance proceeds. While states maintain databases for individuals to search and reclaim their property, many account holders remain unaware of the transfer until they attempt to access their funds.
Experts warn that seniors and other savers who set and forget their accounts are particularly vulnerable. The closure of accounts without explicit notification can cause confusion and distress, especially when the money represents a lifetime of savings. The Consumer Financial Protection Bureau advises consumers to regularly monitor their accounts and maintain some form of transaction, such as a deposit or withdrawal, to prevent dormancy.
This issue underscores the importance of understanding the fine print in banking agreements and staying vigilant about account activity. Savers are encouraged to contact their financial institutions to clarify dormancy policies and to periodically check state unclaimed property websites to recover any funds that may have been transferred.
As financial institutions continue to enforce escheatment laws, awareness and proactive account management remain critical to safeguarding one’s savings from unexpected closure and transfer.
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