What is an Inactivity Fee?

An inactivity fee is a fee which is charged when a financial account remains dormant for an extended period of time. Such fees are not charged by all financial institutions, and they must be disclosed in the terms and conditions associated with the account. An institution can opt to add inactivity fees to accounts which are already open, in which case they must send a notice to make the customer aware of the change in terms and provide an opportunity to opt out by closing the account.

Inactivity fees are also known as dormancy fees. They can be charged on trading accounts, credit cards, and regular bank accounts, such as checking and savings accounts. The fee is usually charged if no activity occurs on an account for at least 90 days. Because inactivity fees themselves count as activity, charging inactivity fees means that funds in these accounts will not revert to the ownership of the state, because the account is not considered abandoned.

The definition of "activity" can be variable, and it is important to look up the way in which the financial institution defines the word. For example, checking up on the balance with telephone or online banking might satisfy the activity requirement and prevent an inactivity fee. In other institutions there must be transactions on an account for it to be considered active.

Inactivity fees are most likely to be a problem for people who have a passive approach to account management. Some consumers, for example, keep credit cards for emergencies but do not use them regularly. Leaving cards dormant for months can result in inactivity fees. Likewise, people who open brokerage accounts but do not actively use them may find their accounts classified as inactive and an inactivity fee may be charged.

If an inactivity fee is charged and it is a surprise, the financial institution may be willing to make an exception and waive the fee. Consumers should ask about what they can do to avoid such fees in the future. They may want to consider closing out the account if it is unlikely to be used in the future so that they no longer have to worry about the risk of an inactivity fee.

With credit cards, while it was once believed that closing a credit card had a negative impact on credit score, credit bureaus have informed consumers that this is not actually the case. Of more concern is credit utilization; if closing a credit card will bring someone's total debt above 50% of the maximum available credit, it will have a negative impact by changing the consumer's credit utilization. Someone who is not carrying debts or who keeps debt at a low level, however, will not experience a score change by closing out a credit card.