Bank inactivity fees are charges for unused bank accounts. They are also known as dormancy fees. The charge amount and when charges occur can vary by bank or financial services company. These fees are designed to boost bank revenue and encourage the use of bank accounts. To understand these charges, it is important to become familiar with a particular bank’s policy. This helps to avoid surprise fees which eats into your hard earned income. To avoid possible inactivity fees, make sure to have small monthly transactions. If a bank account is not needed anymore, consider closing it. Being proactive helps ensure financial security and effective account management. Inactivity fees can be confusing, read on to learn more about them!

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What is a bank inactivity fee?

A bank inactivity fee is a charge set by a financial institution. It occurs when a bank account remains dormant or inactive for a specified period. Inactivity typically refers to an extended period without any customer-initiated transactions. This can be deposits, withdrawals, or transfers. Banks use inactivity fees to generate revenue and encourage customers to engage with their accounts. These fees vary among banks. For this reason, account holders must be aware of their specific bank’s policies. Especially regarding inactivity fees to avoid any unexpected charges. Taking proactive measures, such as making regular transactions, can help prevent these fees.

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Why do banks charge inactivity fees?

Banks charge inactivity fees for multiple reasons. The biggest reason is it generates revenue. When accounts are inactive, banks miss out on potential earnings. They earn money from transactions, loans, and other financial services that occur through a bank account. If an account is not being used, banks can’t earn money. Ultimately, when it comes to banking, profits are tied to customer engagement. Inactivity fees make sure customers will use their bank account or pay for not using it. Since most people don’t like paying for things they are not using, this encourages clients to utilize or close their accounts. This also encourages banks to create products and services that will engage clients more. Banks actively look to offer additional products and services.

Profits aside, inactivity fees help cover administrative, overhead costs. Yes, there are costs associated with maintaining unused bank accounts. These costs include record-keeping, bank statements, and compliance with regulatory requirements. Even inactive accounts need to be insured in Canada, this is a potentially huge cost for banks. By charging inactivity fees, banks can offset these operational expenses. It is important for customers to maintain some use of bank accounts or to close them down if they no longer need them. Banks are happy to charge inactivity fees, but if there is no prospect of an account being used, they are just as happy to close the account. 

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Can Canadian banks charge inactive fees?

Canadian banks are allowed to charge inactivity fees. Each bank’s specific policies can vary. In Canada, banking regulations and fee structures are overseen by regulatory bodies and agencies. The Financial Consumer Agency of Canada (FCAC) is one of these agencies. Within these regulations, banks are allowed to charge inactivity fees. Specific banks have different rates and structures for how they charge their customers for inactivity. It is important to become familiar with your bank’s fees and policies. Bank account agreements should outline whether inactivity fees apply and what triggers them.

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How long can a bank account be inactive?

The specific rules for bank inactivity can vary by institution. Normally, banks will allow an account to remain inactive for a maximum of 10 years. At the 10-year mark, banks will release any unclaimed account funds to the Bank of Canada.

Typically, an account is considered inactive if there is no customer-initiated activity for some time. Commonly, this period ranges from 6 months to 2 years. This is heavily determined by the specific bank and account type. Inactivity is measured by the absence of transactions, such as deposits, withdrawals, or transfers. 

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Do you get charged for an inactive bank account?

In many cases, account holders are charged for holding an inactive bank account. Banks will use inactivity fees if an account remains dormant or has no customer-initiated transactions. Depending on the bank, this can be between 6 months to 2 years. 

Inactivity fees are outlined in the terms and conditions of a bank account agreement. This should always be reviewed in detail to confirm your specific account’s policies. Even “no-fee” banks like Tangerine or Simplii may charge inactivity fees. Thereby increasing the importance of reviewing specific bank account agreements to determine if you need to actively use an account or may be better off closing it.

Here are the timelines and inactivity costs for the Big Banks in Canada:

Bank	Timeframe to Become Inactive	Years Inactive	Inactivity Fee
Bank of Montreal (BMO)	2 Years	2 Years 5 Years 10 Years	$30 $30 $40
Canadian Imperial Bank of Commerce (CIBC)	2 Years	2-4 Years 5-8 Years 9 Years	$20 $30 $40
Royal Bank of Canada (RBC)	12 months	2 Years 5 Years 9 Years	$20 $20 $40
Scotiabank	6-12 months	2-4 Years 5-8 Years 9 Years	$20 $30 $40
Toronto-Dominion Bank (TD)	2 Years	2-10 Years	No fees

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How long can a bank account be inactive in Canada?

The specific rules for bank inactivity can vary by bank. Typically, banks will allow an account to remain inactive for a maximum of 10 years. At the 10-year mark, banks will release any unclaimed account funds to the Bank of Canada.

How do I avoid inactivity fees?

To avoid inactivity fees on your bank account, be proactive. Start by understanding your bank’s specific policies. Each financial institution has its own set of rules regarding inactivity fees. Carefully review the terms and conditions associated with your account. Regular transactions, such as deposits, withdrawals, or transfers, serve as a simple yet effective method to keep your account active. Thereby avoiding inactivity fees. Even small transactions, like buying a coffee every now and then, help maintain account activity.

Consider setting up automatic transfers between accounts or scheduling regular payments. Online banking services provide a convenient means to monitor your accounts. Which would allow you to respond promptly to any inactivity concerns. If you have multiple accounts and some are unused, close the unused ones. This eliminates the risk of inactivity fees.

If you anticipate a period of inactivity, like extended travel, proactively contact your bank. Some financial institutions may offer options or exemptions. It’s essential to stay informed, as banking policies can change. Periodically check for updates in your bank’s terms and conditions.

Finally, it may be a good practice to review all open accounts regularly. This will help you understand if accounts are needed or can be closed. From there, you can close accounts your not using to avoid inactivity fees. A six month or yearly financial health check should be all that is necessary to avoid these fees. A monthly or weekly review of all financial accounts may help with other financial goals.

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