Idle bank accounts get four more years

Australians who aren't actively using their bank accounts now have an extra four years before having to retrieve their cash from the federal government.

Legislation to reverse the Labor-imposed three-year deadline for unclaimed money to seven years passed the parliament on Wednesday.

This means customers have longer to accrue interest on their accounts without making a deposit or withdrawal before the funds are transferred to government coffers, where they will attract interest at the bond rate and not be subject to fees.

The federal government says Labor's 2012 legislative change was a cash-grab to improve its balance sheet and caught thousands of Australian families unawares.

Assistant Social Services Minister Mitch Fifield said the "personal legacy" of Opposition Leader Bill Shorten - the minister who introduced the measure at the time - left Australians in financial distress.

"At the time, Mr Shorten pretended he was doing a favour to people who had forgotten their existing savings accounts," Mr Fifield said.

"There were thousands of Australians who were horrified that their accounts had been emptied out by Mr Shorten."

Unclaimed money in government accounts increased eight times in 12 months after changes.

Conceding some unintended accounts had been effected by the change, Labor backed the reversal of its policy.

When first introducing the policy, Labor argued the shorter time period protected accounts from erosion by bank fees and charges.

The Greens have used this same argument to fight the changes this time around.

Senator Peter Whish-Wilson used his own experience of depositing $500 only to find six years later the balance had dropped to $126.

It was obvious banks wanted to increase their fee income, he said.

But Nationals senator John Williams said recounted his experience of dealing with his late mother's savings account, which would have been closed if the bank had not notified him of its inactivity.

The federal government says the changes will require some administration, or "red tape".

The legislation also changes the notification requirements so if a customer advises a bank before the seven years is up, the account can remain active.