Last month I described the issue that I had with my credit union. A CD that I have with that credit union is maturing in January. As I was preparing to close the CD at maturity, I learned that my share savings account at that credit union had become inactive and frozen. This could have complicated my plans of closing the CD if I had not noticed it. This is one reason that it's important to make sure your accounts remain active. Account inactivity can also lead to fees, and if the account remains inactive for enough time, you run the risk of escheatment.
Account inactivity is something that can easily impact many savers who open CDs at several credit unions. Most all credit unions require members to maintain a savings account. You should not assume that your CD at the credit union will keep the savings account active.
I thought it would be useful to review the account inactivity policies at some of the popular credit unions where savers are likely to have CDs. In the last week, I've investigated the account inactivity policies at Pentagon Federal Credit Union (PenFed). I've been posting on PenFed's competitive CD rates since 2006. I'm sure many readers have CDs and IRA CDs with them.
PenFed's Account Inactivity Policy
I wasn't able to find a good description of account inactivity policies at PenFed's website, so I emailed PenFed's member service representatives. The answers that I received were a little confusing, so I emailed my contact at PenFed and she checked with PenFed's compliance team. Here's a summary of what I was told:
- Share Accounts become inactive at 11-months
- Inactivity status can be changed with just a call (member-initiated deposits/withdrawals also count as activity)
PenFed's Policy and Procedures state accounts are inactive at 11-months. The inactive status really is not an issue unless the only account is a Share account and there is no activity up to the time of escheatment. Certificates by their nature can fall into inactive status, but nothing happens.
A Share account being inactive just means the clock is ticking toward escheatment. An account becomes escheated (this varies from state to state) at a minimum of five years. A member will only incur a fee if he/she has a bad address on file and the account is inactive. That fee is only assessed on the Share account, and the fee is $15 quarterly.
An account remains or becomes activated by “member-initiated” activity. Earning dividends or having fees assessed are not member initiated. A member can call or email PenFed, and ask that PenFed updates the accounts. Or, if the member has a Share or checking account, the member can make transfers funds between the two accounts to reactivate the status. This is assuming the accounts in question have balances. If the account has a zero balance or is overdrawn, those accounts may be closed.
In my last post, DA reader pearlbrown provided the following useful rule of thumb to avoid account inactivity. This works for PenFed and at most financial institutions:
a 6-month rule of thumb has worked well to help avoid problems with dormancy rules. That is, I make sure each institution where I have an account has some activity every 6 months, even if it is just a modest deposit to the savings account. The rule of thumb is also useful for use with credit cards - each one is used for a charge at least every 6 months, even if it's only a cup of coffee.
One possible gotcha is if the institution doesn't count an ACH transfer as an activity. Some institutions don't count ACH as an activity for the dormancy rules. Second, some institutions will label an account inactive before 6 months. I've seen the time be as little as 3 months.
Account inactivity policies are important for savers, and unfortunately, institutions often don't clearly describe their policies. To avoid having your account frozen or being hit by inactivity fees, make sure you learn the account inactivity policies of all of your banks and credit unions.