It's easy to think that all the power is in your hands when it comes to your bank accounts. You choose which bank you want to work with, what type of account you need, how much you keep there, and when you take it out.
Banks are eager to hold onto your money, so that's usually how it works. But there are a few situations where your bank may decide it no longer wants to do business with you. Below, we'll look at three of them and what you can do if your bank closes your account.
Three reasons your bank might close your account
Here are three common reasons your bank might close your accounts without your permission.
Inactivity
One of the most common reasons banks close accounts is because you're not using them. If you haven't deposited or withdrawn money from the account in months or years, your bank may decide to shut it down so it doesn't have to maintain it anymore. Alternatively, they may charge you a fee for inactivity.
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Each bank sets its own rules for determining when an account becomes inactive. If you have any questions about this, you can always reach out to your bank to learn more.
Excessive overdrafts
Overdrafts -- withdrawing more money than you have in your bank account -- can result in fees if you have overdraft protection enabled. Doing this once in a while may not raise any red flags with your bank, but if you do so often or you aren't able to get your account back into the positive, your bank may decide to cut its losses and close your account.
This isn't something you usually have to worry about if you don't use overdraft protection, though. In this case, the bank will decline any transactions you attempt to make that exceed your current account balance. However, if the account charges monthly fees you fail to pay, you could find yourself in a similar situation.
Fraud
If your bank catches wind of the fact that you're using your account to scam others out of their hard-earned cash, they'll almost certainly close your account. And that may not be the worst of your problems. This one is pretty straightforward. Don't try to cheat anyone and you won't have to worry about this.
What to do if your bank closes your account
The way you handle a closed bank account will depend in part on why the bank closed it. If it was a simple matter of inactivity, you may be able to contact the bank to negotiate or to open a new account with them. Shopping around for a new account at a different bank is also an option.
Things are more complicated if the bank closed your account due to unpaid maintenance and overdraft fees or because of allegations of fraud. Your bank will probably be reluctant to work with you again, and other institutions might be as well.
Banks report the reason for account closures to an agency known as ChexSystems. This enables other institutions to learn more about your banking history before deciding whether to give you an account.
In the worst-case scenario, traditional banks and credit unions may not want to work with you based on your past banking behavior. If this happens, you may have no choice but to seek out a second-chance checking account.
These are accounts specifically tailored to people who have had bank accounts closed on them in the past. The idea is similar to a secured credit card for those with poor credit histories. They typically carry more restrictions than a standard checking account, including monthly fees you cannot waive. But if you avoid fraudulent activity or negative balances, the bank may invite you to upgrade to one of its regular bank accounts in six months to a year.
Hopefully, you never find yourself in a situation where you need one of these, but it doesn't hurt to understand these rules anyway. And as always, if you have any questions about your bank account's rules, don't be afraid to reach out to the institution and ask. A quick call or email could save you a lot of confusion.
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FAQs
For instance, your bank may suspect you're a victim of identity theft or that your account is engaging in money laundering or wire fraud. Excessive bounced checks or overdraft fees: Banks often close the accounts of customers who frequently bounce checks.
Why would a bank randomly close your account? ›
For instance, your bank may suspect you're a victim of identity theft or that your account is engaging in money laundering or wire fraud. Excessive bounced checks or overdraft fees: Banks often close the accounts of customers who frequently bounce checks.
For what reason can a bank account be closed? ›
Generally, banks may close accounts, for any reason and without notice. Some reasons could include inactivity or low usage. Review your deposit account agreement for policies specific to your bank and your account.
Why are banks shutting down accounts? ›
They close down checking and credit-card accounts in part to keep regulators, who are worried about money laundering and other criminal activity, out of their hair. The closures often happen without warning, and chaos ensues when people lose access to their money for weeks and can't pay their bills.
Can I reopen my closed bank account? ›
Can you reopen a bank account if closed? It depends on the situation. It is possible to reopen a closed account if it was closed due to inactivity. A bank may not reopen the account if it was closed due to irregularities, compliance issues, or a breach in the terms of service.
Why would you want to close a bank account? ›
Avoid high fees
The biggest reason to close a bank account is to avoid fees. Some banks charge customers regularly through minimum balance requirements or monthly maintenance fees.
How to keep your bank account from being closed? ›
Per CNBC Select, you can "lessen the risk of your account being closed" by monitoring your account balance and enrolling in notifications to know if it falls below a certain amount or when certain transactions or deposits occur.
Should I be worried if the bank closed my account? ›
While closing a bank account typically doesn't have a direct impact on your credit score (like, say, having your credit card closed on you), it could become a problem if your account has any outstanding balances, such as unpaid overdraft fees.
Why would a bank account be closed for no reason? ›
The likelihood of your bank account being closed without any warning is generally low. However, the rate of account closures is rising. Your bank account might be closed without notice if the bank suspects fraudulent activities, if you repeatedly overdraw your account, or if you don't use the account for a long time.
Can you fix a closed bank account? ›
If the reason the account was closed was due to an unpaid balance, find out how much it is and pay it off. Ask to reopen the account. Once your account balance is settled, the bank may be willing to reopen it. If it's unable to do that, you can explore opening a new account with the same bank.
If you have a positive balance, ask the bank how you can receive the funds safely and quickly. You may get a cashier's check and be sent on your way.
Can a bank legally hold your money after closing your account? ›
The bank may hold onto the funds and give the account holder time to reopen the closed account. Banks may issue a paper check to the individual who owns the closed account. To avoid a misdirected deposit, it's important to double-check account numbers and cancel direct deposits before closing a bank account.
Why is my bank account randomly closed? ›
Contact the bank immediately to find out what suspicious activity was detected. In some cases, your account may have been closed due to a mistake or misunderstanding, which can be resolved. Other times, you may need to file a complaint or find a new institution.
What bank account can the IRS not touch? ›
Certain retirement accounts: While the IRS can levy some retirement accounts, such as IRAs and 401(k) plans, they generally cannot touch funds in retirement accounts that have specific legal protections, like certain pension plans and annuities. 7.
What are the red flags for bank accounts? ›
These may include, for example, unusual account activity, fraud alerts on a consumer report, or attempted use of suspicious account application documents.
Can a bank deny you access to your money? ›
Key Takeaways. You can still receive deposits into frozen bank accounts, but withdrawals and transfers are not permitted. Banks may freeze bank accounts if they suspect illegal activity such as money laundering, terrorist financing, or writing bad checks.
Can a bank reverse a closed account? ›
Dormant accounts require reactivation, which can often be resolved by making a transaction. Accounts closed due to excessive overdrafts may be reopened after settling outstanding balances. Fraudulent activities leading to account closure generally prevent reopening with the same bank.
How long can a bank block your account for suspicious activity? ›
How long can a bank freeze your account for suspicious activity? It is most likely to be resolved within a couple of weeks. However, if the NCA are investigating you may not hear anything for up to 42 days. After the expiry of that period the Bank must normally release the bank account unless there is a court order.
Why would a bank stop an account? ›
A bank can suspend an account because the customer has insufficient funds to make payments or is in arrears. Banks can also put a hold or stop on the customer's card. The customer needs to either transfer funds, if available, into that account, or arrange to repay the money. The bank will then lift the freeze.
What happens when a bank closes? ›
If your bank closes, you should receive notification of what will happen to your money from the FDIC or NCUA, the acquiring bank or both. You'll automatically have an account at the new bank, or the FDIC or NCUA will issue you a payment returning your funds.
Bottom line. Closing a bank account that's in good standing won't hurt your credit score. If you have a negative bank balance, however, it's important to resolve the balance before closing the account. Otherwise, your credit could suffer as a result.
Does a closed bank account affect credit? ›
Generally, closing a bank account doesn't affect your credit
The Consumer Financial Protection Bureau confirms that the three major credit bureaus — Experian, Equifax and TransUnion — don't typically include checking account history in their credit reports.
