What Is an Account Freeze?
An account freeze is an action taken by a bank or brokerage that prevents some transactions from occurring in the account. Typically, any open transactions will be canceled, and checks presented on a frozen account will not be honored. However, the account holder can still deposit money into the account.
Key Takeaways
- Account freezes prevent transactions from going through on a bank or brokerage account.
- Essentially, money can be deposited into the account but no money can leave the account.
- Account freezes can be put in place by an account holder (in the event of a lost or stolen debit card), or the bank or regulatory authority.
- The bank or regulatory authority may freeze an account because of suspicious activity, suspected criminal activity, civil actions, or liens.
Understanding an Account Freeze
Account freezes can also be initiated by either an account holder or a third party, such as a government, a regulatory authority, or a court order. Many banks and credit card providers are now offering the ability to freeze an account online. In the event of a lost or stolen card, a cardholder can quickly “freeze” the account.
A government or regulatory authority may freeze an account because of suspicious activity, suspected criminal activity, civil actions, or liens filed against the account. Furthermore, a bank or brokerage account may be frozen when the account holder dies. Once the appropriate documentation is presented, a new account will be opened in the beneficiary's name with access to the assets.
Account Freezes in Times of Political Unrest
Multinational enterprises run the risk of having foreign direct investment accounts frozen or more specifically "blocked" in international finance parlance. During times of political unrest, national governments may "block" foreign entities from withdrawing assets. As a form of transfer risk, national governments might use these discriminatory tactics when their central banks are running short of foreign exchange, for instance.
For example, on Feb. 22, 2022, President Joe Biden announced economic sanctions on Russia over its invasion of Ukraine. These sanctions included freezing the U.S. accounts of five Russian elites.
There are no universal set of standards or practices that outline the various reasons an account can be frozen. It often comes down to account type (or purpose), local and national regulations, or unfavorable political and economic sanctions and blowback.
How Do You Freeze a Bank Account?
You can freeze your bank account to prevent any debit transactions from clearing by logging into your online banking platform or mobile banking app (assuming your bank offers the option). Or you can contact customer service and request an account freeze.
Why Would a Bank Freeze an Account?
Banks can freeze an account for a variety of reasons, including suspicious or illegal activity, or unpaid debts due to creditors or governments. Banks may freeze accounts for using the account in a manner that goes against its policies.
How Long Can a Bank Freeze an Account for?
There is no set timeline that banks have before they have to unfreeze an account. Generally, for simpler situations or misunderstandings the freeze can last for seven-10 days. For more complicated situations, the bank may request detailed information and take 30 days or more to review and decide whether to unfreeze or close the account entirely.
The Bottom Line
Banks and brokerages have the ability to freeze a bank account for a variety of reasons. This is done to prevent transactions from going through on an account. Basically, funds can still be deposited into the account, but no money can leave the account. An account freeze can also be initiated by an account holder (in the event of a lost or stolen debit card) or a third party, such as a government, a regulatory authority, or a court order.
If you discover that your account has been frozen, you should contact your financial institution as soon as possible to find out the reasons for the freeze and what you need to do to have it lifted.
