A dormant account is one in which no activity, whether a deposit or withdrawal, has occurred over a certain period of time. Usually dormant accounts are also low-balance accounts. Since there are not a lot of funds involved, the account holder may not feel any effects that the account’s inactivity may have. However, even if the account holder does not perform any action in relation to the account, it may still accumulate interest, albeit a small amount, as well as be subject to deductions resulting from service charges.
Dormant accounts are sometimes confused with inactive accounts. While they do have certain similarities, inactivity usually comes first. For instance, if the account holder does not initiate any transactions for an entire year, the account may be considered inactive. Should this period of inactivity extend to two years or more, the account may be considered dormant. The period of time after which an account is considered either dormant or inactive may depend on the territory in which the bank is situated, or may also vary from bank to bank. Banks may also, at their discretion, issue notices to inform account holders regarding the status of their accounts, thereby helping avoid dormancy.
When an account is declared dormant, the account holder may no longer perform transactions, such as deposits or withdrawals. If a check is issued for a dormant account, this may also be dishonored, even though there is sufficient balance to cover it. Changes to account details may also be restricted. Dormant accounts may be reactivated, but the conditions under which this can be done may also vary depending on the laws of the specific country.