Dormant Account

Categories: Banking, Managed Funds

An account that's sleeping. No activity. Dormant. Like a bear in winter, a cicada for 7 years around Princeton, and most Congresspeople.

Your parents open up a savings account for you when you're 12 years old. They make you deposit your birthday money in there every year. Once you go to college, you forget all about it.

Fast forward 30 years. You're helping your mom clean out the attic and you find your old bank book. You check out the account online. No activity, except for payment of interest, in decades. Dormant account.

But at least now you have a few hundred bucks to take Mom out for a nice dinner. Or get the attic professionally cleaned.

Related or Semi-related Video

Finance: What is a Wrap Account?31 Views

00:00

Finance allah shmoop what is a rap account Okay yeah

00:08

yeah inserted joke about eminem here a rap account with

00:12

a w wraps into one annual fee All of the

00:16

services you'd normally pay for ala carte at a given

00:20

brokerage that is a broker might charge you a one

00:23

percent rap account fee to manage all the assets you

00:27

have with her in return for things like quote no

00:30

fee unquote access to their proprietary mutual funds you get

00:35

toe by the mutual funds no load and the quotes

00:39

air there because there is a fee annually to manage

00:43

the fund But at least this way there is no

00:45

fee to buy into the fund or no load their

00:48

god it see how that works The rap account can

00:50

also include unlimited trading at quote no fee unquote as

00:54

well like quotes or there again because there's usually a

00:57

spread on each trade like you buy a twenty eight

01:01

dollars and twenty seven cents and you sell a twenty

01:03

eight dollars in nineteen cents So there's a seat since

01:06

spread they're they're still making money on each trade There

01:09

just isn't an incremental fee tacked on top of all

01:12

That so your broker khun get that second home in

01:14

the hamptons and that one percent feet Well that's based

01:17

on the total amount invested with the broker got it

01:20

So if you have a million dollars invested with them

01:22

it's ten grand a year for that rap account fi

01:25

system we'll wrap accounts often come with minimum investment levels

01:28

well above those of a mutual fund like twenty five

01:31

fifty grand or more But in having a one feet

01:34

covers all approach a broker is not incentivized to churn

01:37

the account or do really anything to generate commissions for

01:41

themselves because there ain't any The only thing they're incentivized

01:44

to dio is gather more of your assets or make

01:47

your assets be worth more so they can keep going

01:49

on the whole one percent dance Yeah the notion goes

01:53

in theory anyway that if the broker helps client invest

01:55

well over time the client will remain a loyal one

01:58

and stay with that broker for a very long high

02:01

margin to the brokers Time for many large brokerages rap

02:05

accounts allowed their clients to be able to buy various

02:07

flavors of funds mutual hedge or index at quote wholesale

02:11

Prices unquote That is if the fund is a captive

02:13

fund maintained by the brokerage The rap account allows the

02:16

client to buy with no commissioner upfront charges which is

02:19

kind of a nice nice deal for him Yeah quick

02:22

example If jay z gives his broker one hundred million

02:24

dollars under a rap account that charges one percent the

02:27

broker will charge a million bucks a year in return

02:30

for handling all of jay z's trading wiring and a

02:34

whole bunch of other services got it One percent on

02:36

the hundred million broker makes million bucks a year and

02:39

if jay z also has a rap account you know

02:42

with no w there Well there's always a chance Queen 00:02:45.555 --> [endTime] bee well pop in for a cameo

Find other enlightening terms in Shmoop Finance Genius Bar(f)