DEFINITION of 'Inactivity Fee'
1. A sum charged to investors who haven't engaged in any buying or selling activities in their brokerage accounts for an amount of time specified by the brokerage.
2. A sum charged to credit card holders who haven't made any purchases in an amount of time specified by the credit card company.
BREAKING DOWN 'Inactivity Fee'
1. One way that brokerages make money is from commissions on trades. When a customer makes infrequent trades, the brokerage doesn't make money from that customer, and it may try to compensate for the lack of commissions by charging inactivity fees. Smaller, passive investors who make a small number of trades are the most disadvantaged by inactivity fees.
2. Similarly, credit card companies receive a small percentage of the sale each time a customer uses a credit card to make a purchase. When a customer stops using the credit card, the credit card company stops receiving this income, and it may charge an inactivity fee as a way to earn money from a customer who otherwise isn't generating any income for the company.