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Dormancy fees is a money term you need to understand. Here’s what it means.
What are dormancy fees?
Financial institutions sometimes charge an extra fee if you don’t use your account for an extended period. Called a dormancy fee or inactivity fee, it typically applies after several months of not using your account.
Until recently, credit card issuers routinely charged dormancy fees, which are now illegal in the U.S. under the Credit CARD Act of 2009. However, this fee may apply to other types of financial products such as gift cards and many prepaid cards after 12 months of activity. Card issuers must notify consumers of the fee before giving it to them and can only charge the fee once per month.
Prepaid debit cards often charge dormancy fees, with many applying the fee after 180 days of inactivity and some giving cardholders just 90 days to use their cards, without incurring a dormancy fee. This dormancy fee is typically a few dollars and is charged each month the cardholder doesn’t use the card.
You also may incur dormancy fees on investment accounts because the bank loses out on the transaction fees it would receive if you were trading regularly.
If you’re not interacting with the account in some way, such as making trades, adding money or making some other kind of change, the investment firm may charge a dormancy fee every month, quarter or year. So, even if you’re making money on your investments, you could see your profit diminish if you don’t use the account and the firm starts tacking on a dormancy fee.
Some banks and credit unions also charge dormancy fees for checking and savings accounts. If you don’t deposit or withdraw money for a certain period of time, you may incur the fee every month that you don’t use the account. However, some banks may reimburse the fee.
Dormancy fee example
If you buy a prepaid debit card and don’t use it for several months, say between 90 days and 180 days, the issuer might charge anywhere from $1.95 to $5.95 a month for every month you don’t use the card.
Even if you initially use the card, the issuer might start charging a monthly dormancy fee for not using it for several months. You can avoid the fee by using it regularly, even just for a small amount every few months.
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