Why Do Banks Charge Inactivity Fees?

More and more, some banks are increasing their revenue through the implementation of elaborate and sometimes confusing fees.

3 min read

The way banks tend to make money is relatively straight-forward. Often, they offer services to attract people looking to deposit their money in a safe place, sometimes paying out interest. Banks then take that money and lend it out to borrowers at a higher interest rate, and they make a profit from the rate spread. More and more, though, some banks are increasing their revenue through the implementation of elaborate and sometimes confusing fees. These might include overdraft fees, account maintenance fees, account closure fees, and inactivity fees, among other service charges.

What is an inactivity fee?

There’s a logical rationale for charging many fees. For example, overdraft fees not only help cover the cost of resolving issues when someone tries to draw more money than they have in the bank, but also acts as an effective motivation for people to closely monitor their accounts.

What frustrates many consumers, are fees where a financial institution isn’t providing a service beyond their day to day business. A prime example of that is the inactive account fee. This fee often is incurred when an account owner doesn't interact with their account over a period of time. That length of time varies from bank to bank, but the timeframe usually falls between one to two years.

So let’s say you have money sitting in the bank, but your account is deemed as inactive because you haven’t touched that money in months. By definition, you’re not withdrawing money from the account, so the bank is fully able to lend out that money to others and profit from any interest rate spread. You’re also likely not calling into the bank to request services, or walking into a branch to speak with a teller. And yet, many banks will charge you a fee each month if your account is dormant.

How much are inactivity fees?

The amount you can get charged for inactivity fees varies from bank to bank, but typically the fee is between $5 and $20 a month. While some banks may not charge inactivity fees, many do, so it’s important to keep an eye on your accounts each month and do your research before opening a new bank account.

At N26, you can feel confident knowing your money won’t be going to these fees. N26 accounts are quick and easy to open directly from your phone and don’t charge inactivity fees.

How do you avoid inactivity fees?

You could set up automatic payments to be sent from the account. If you don’t want to fully draw down the account, you could set up direct deposits of your paycheck into the account, or schedule regular transfers from another financial institution.

There’s a simpler way, though, open an account with no monthly fees. Accounts with no fees are hard to find, but some companies, like N26, also avoid charging other hidden fees that frustrate so many consumers. That approach reflects whether the company is customer-oriented, or is looking for ways to tack on fees while still making money by arbitraging interest rates.

The N26 account is offered by Axos Bank®, Member FDIC. N26 Inc. is a service provider of Axos Bank. All deposit accounts of the same ownership and/or vesting held at Axos Bank are combined and insured under the same FDIC Certificate 35546. All deposit accounts through Axos Bank brands are not separately insured by the FDIC from other deposit accounts held with the same ownership and/or vesting at Axos Bank. The N26 Visa® Debit Card is issued by Axos Bank pursuant to a license by Visa U.S.A. Inc. The N26 Visa Debit Card may be used everywhere Visa debit cards are accepted.

By N26

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