Inactivity Fees | Why Businesses Charge You For Not Using Their Product

It might sound strange, but some businesses may charge you a fee if you don’t use their products. This is true, particularly for bank accounts. A bank account provides you with a place to keep your money safe and some even let you collect a little interest on your deposits. But if your account doesn’t see any activity over a few months, your financial institution might slap you with ‘inactivity fees’ as a result.

What are inactivity fees, and why do banks charge them?

What Are Inactivity Fees?

Depending on the way your bank account is set up, you may be charged a monthly fee for every transaction you carry out on your account. These are common fees associated with using your bank account. However, on the opposite end of the spectrum where your account is not being used at all, there are some other fees you may come across – inactivity fees. 

Inactivity fees are charged when a bank account sits dormant. That is, there have been no deposits, withdrawals, or transfers on the account in a long time. 

Whether you forgot about the account or don’t have much use for it, you could find yourself paying inactivity fees if you go months without making use of your account. These fees can apply to all sorts of accounts, including savings accounts, chequing accounts, and credit card accounts. 

How Much Do Banks Charge For Inactivity Fees? 

Inactivity fees vary from one bank to another, but generally cost anywhere from $5 to $20 per month. Before you open an account, be sure to find out whether or not the financial institution you’re working with charges inactivity fees, and how much they’ll cost you if you leave your account inactive for an extended period of time. 

Which Banks Charge Inactivity Fees?

There are several banks that charge inactivity fees, including the following 5 ‘big banks’:

Why Do Businesses Charge You For Not Using Their Product?

Inactivity fees might not sound fair, but there are reasons banks charge them. There are costs associated with maintaining your bank account, even if it’s not being used. For example, it costs the bank money to provide printed bank statements, pay staff to monitor your account, and cover costs for fraud protection, legalities, and compliance. Inactivity fees can help cover these expenses.

Banks also charge inactivity fees to encourage you to do more business with them. If your bank account is just sitting there, the bank isn’t getting the most out of its relationship with you. Having an account with your bank might get your foot in the door, but your bank wants more from its clients. 

Ultimately, banks want clients to interact more with them and eventually take out additional accounts and apply for more products, such as mortgages and investment accounts. The more business you do with your bank, the more money they make, and charging you an inactivity fee is one way to engage you. 

Other Companies That Charge Inactivity Fees

Besides traditional banks, there are other financial institutions that charge fees for accounts that lie dormant. 

Paypal 

PayPal recently implemented an inactivity fee on accounts that do not see any activity for 12 months. The maximum fee charged is $20 a year. 

However, no fee will be charged in a situation that would result in a negative balance. For example, if an account has a balance of $5 and has not been used for at least 12 months, PayPal will charge a $5 inactivity fee on the account. Moreover, to avoid the fee altogether, you simply need to log into your account to show you’re active. 

Koho Prepaid Cards

KOHO charges an inactivity fee on accounts that have been open for 13 months but inactive for 6 months. The fee is $1 and is charged monthly. Regardless of which card you have (KOHO Prepaid Mastercard, KOHO Premium Mastercard), the monthly inactivity fee is $1. It’s important to note that KOHO defines inactive accounts as accounts that have not had any money loaded into them or accounts that have made no transactions.

How To Avoid Inactivity Fees

Inactivity fees might not be terribly expensive, but they can be annoying, especially since they’re easily avoidable. Here are a few ways to avoid these fees.

Make Occasional Transactions 

Make a few transactions from time to time to keep your account active. For instance, deposit or withdraw a few bucks two or three times a year. Or, set up a recurring transfer into or out of your account every month so the transactions occur automatically. 

If it’s a credit card account, use your card once in a while to keep it from becoming inactive. Just make sure you don’t rack up a big balance and are able to pay it off by the payment due date.

Close the Account 

If you no longer have any need for your account, perhaps it may be a good idea to simply close it. Closing a bank account or a credit card is easy and can generally be done online, over the phone or by going to a branch in person. 

Cancel Your Credit Card 

If you no longer have any use for your credit card and are tired of paying inactivity fees just to have it, you could consider cancelling your credit card account. However, you may want to think twice about doing that. Having old credit accounts is a good thing for your credit score, as it contributes to your credit utilization ratio and credit age, both of which impact your credit rating.

By closing your credit account, you could cause your credit score to take a small hit. It will also lower your credit utilization ratio, which means you’ll have less credit available to you in case you need it in a financial emergency. 

How To Cancel Your Credit Card With Different Banks

Keep Your Account Information Up-to-Date

After a while, your bank will get in touch with you before charging an inactivity fee. Depending on the situation, they may cancel your account completely. But they won’t be able to contact you if the phone number and address they have on file are outdated. 

Make sure your contact info is up-to-date to keep the communication lines open in case your bank is trying to send you a notification of a pending inactivity fee. 

Inactivity Fees FAQs

Final Thoughts

Inactivity fees are a nuisance, but you can avoid them by regularly checking on all your accounts. When you do, determine whether or not they’re worth keeping open, and if they are, carry out a small transaction to avoid these fees. Otherwise, consider closing the account.