Dormant Bank Account & What It Means for Your Business
This article is part of a larger series on Business Banking.
A dormant business bank account occurs when an account has no owner-initiated transactions for more than 24 months. These include withdrawals, deposits, and transfers consisting of cash, check, automated clearing house (ACH), and wire transactions. This can apply to deposit, investment, and retirement accounts. Interest accrued isn’t considered a transaction to keep an account active.
Dormant business bank accounts occur most often with companies that closed. If you only have one business bank account and it becomes dormant, chances are your business is already in financial trouble. If the dormant account is one your business doesn’t use anymore, it likely won’t impact your business significantly.
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How a Business Bank Account Becomes Dormant
Before a business checking account becomes dormant, it first becomes inactive. An account is classified as inactive if there are no owner-initiated transactions for 12 months. Some banks might reach out at this point to notify you that your account is now inactive. After another 12 months without activity, it becomes dormant, and your bank may charge a monthly fee while it’s inactive or dormant. If your dormant account has a zero balance, the bank may close your account.
The bank will turn over any funds left unclaimed in dormant accounts to the state as abandoned funds. But before it does this, a dormancy period must elapse. During that time, it’ll notify you that your account has become dormant and attempt to return your funds or allow you to make the account active again.
What To Do When Your Account Becomes Dormant
If you receive notification that your account has become dormant, you have three options:
- Make a transaction and reactivate the account: As long as the bank hasn’t turned the funds over to the state, you can still initiate a transaction on the account, which reactivates it.
- Withdraw or transfer the remaining funds and close the account: If you aren’t using the account and don’t need it, you can transfer the funds or withdraw them and close the account. Check out our guide on how to close a business checking account.
- Do nothing, and the funds will be turned over to the state: The worst option would be to do nothing. Once the dormancy period ends, the escheatment process will begin, and the bank will turn over the funds to the state. At this point, you’ll have to attempt to reclaim those funds from the state.
Escheatment Process & Retrieving Unclaimed Funds
If the bank cannot contact the account owner to notify them of their dormant account, it’ll turn the funds over to the state in a process called escheatment. Escheatment can occur once the state-required dormancy period has expired.
Each state establishes its own rules for its dormancy period. Generally, the period begins with the last owner-generated transaction on the account, such as a deposit, withdrawal, and check issue date.
The bank account dormancy periods are listed below for all 50 states and Washington, D.C.
- District of Columbia
- New Jersey
- New York
- Rhode Island
- South Dakota
- New Hampshire
- New Mexico
- North Carolina
- North Dakota
- South Carolina
- West Virginia
Some states will have specific rules in addition to the dormancy period, so if you’re looking for more information or are interested in reclaiming funds, visit the website of the Federal Deposit Insurance Corporation (FDIC) for its list of unclaimed property information, the National Association of Unclaimed Property Administrators for unclaimed property links, or the Missing Money website. You can also contact your state’s treasurer’s office or your bank.
There’s no time limit for how long you have to recover unclaimed funds from the state.
How To Avoid Dormant Business Bank Accounts
Dormant business bank accounts occur less frequently than dormant personal bank accounts. The reason is simple: Businesses should have financial experts keeping track of where the company’s finances are located. It should be much more difficult for a business account to remain open, without transactions, for a long enough time for the account to become dormant.
Here are tips to avoid dormant business bank accounts:
- Plan for what happens to accounts if the company dissolves: One of the most common ways business bank accounts become dormant is when companies become dormant. When drawing up a business plan and organization documents, detail what happens to bank accounts in the event of business failure.
- Open business bank account with online/app access: Almost every business bank account has an app or at least online access. Use that to keep track of your accounts and be mindful of accounts that aren’t used regularly. Bank of America is an excellent choice thanks to excellent online and app access to your accounts.
- Close unneeded accounts, especially if you’re being charged to keep them: Don’t keep accounts you don’t need, especially if there are monthly fees. You don’t want a situation when an account becomes overdrawn due to fees. If the money is earning you interest, keep it, but make sure you have regular transactions on the account.
- Schedule regular transactions in accounts with infrequent usage: If you need to keep an account open (because it earns you interest), schedule regular transfers into or out of the account. This allows you to keep the account open without worrying about it becoming dormant.
Frequently Asked Questions (FAQs)
What is considered a dormant business bank account?
A business bank account generally is considered dormant when the account has no owner-initiated transactions for more than 24 months. These could include deposits, withdrawals, and transfers.
What happens to money in dormant business bank accounts?
Banks must turn over money in dormant business bank accounts to the state once a set escheatment period elapses. That period ranges from three to five years and varies from state to state. Funds turned over to the state can be reclaimed by the rightful owner at any time with no time limit.
How long can a bank account be dormant?
The dormancy period can start in as little as 12 months, but typically begins at 24 months. Generally, an account becomes inactive at 12 months and dormant after 24 months of no owner-initiated transactions. Once the escheatment period elapses, which runs from three to five years from the last owner-initiated transaction, the funds are surrendered to the state.
While a dormant business bank account won’t likely devastate a healthy business, it does become a hassle if you must reclaim abandoned funds from the state. If your only business bank account becomes dormant, there’s a good chance your business is struggling. Make sure your financial expert monitors where you have business bank accounts open. They should also ensure regular transactions for all your accounts to avoid them becoming dormant.