What to Do If Your Bank Closes Your Account | Banking Advice
Key Takeaways
- Banks close customer accounts for various reasons, including negative balances and policy violations.
- Funds may be withheld temporarily if a court order or investigation is involved.
- Contact the bank right away after an account closure to settle your balance.
A surprise bank account closure can be a major financial disruption. Whether your account was closed due to unpaid fees, suspected fraud or account inactivity, you can take action to keep your finances on track.
See why a bank might close your account, how to get your money back and what you can do to protect your finances if your account is unexpectedly closed.
Why Your Bank Might Close Your Account
A bank could close your account because you’re not using it or if there’s a problem with your account, such as irresponsible use or suspicious activity. Common reasons for account closures include:
- Years of inactivity
- Negative balance, bounced checks or overdrafts
- Unpaid debts
- Suspected fraud or financial crimes
- Account policy violations, such as using personal accounts for business
- Criminal conviction
Keeping an account overdrawn for 60 to 90 days is a common reason a bank may close your account, says Teri Williams, president and chief operating officer at OneUnited Bank.
“Another reason that a bank may close a consumer account is if the bank suspects fraud, money laundering, terrorist financing or other illegal activity as defined by the Bank Secrecy Act,” says Williams.
Can a Bank Withhold or Seize Your Funds?
A bank can freeze or hold your funds due to court orders, such as tax levies and garnishments, or for suspected fraud or legal compliance. The bank also may withhold funds to cover a negative balance or fees if you’re facing an account closure. Otherwise, the remaining funds must be returned to you. If the bank can’t contact you to return funds, the balance may be sent to your state’s unclaimed property office.
“The bank must freeze funds as directed if there’s a court order, such as a garnishment or tax levy,” says money coach and certified financial planner Ohan Kayikchyan. “In cases of suspected fraud or financial crime, banks can also place a hold on the account while they investigate, even after the account has technically been closed.”
What to Do If Your Account Is Closed
If your bank account is closed, you should act quickly to protect your finances. The most important steps are to contact the bank to settle your balance and then set up a new bank account.
First, contact the bank to find out why your account was closed. Getting an explanation can help you avoid future account closures.
“While banks aren’t always required to disclose the reason, especially in cases involving suspected fraud, they can often clarify whether the closure was due to account inactivity, unpaid fees, or policy violations,” says Kayikchyan.
When you contact the bank, ask how you can settle your account. If you have a negative balance, find out how to make a deposit. Ask how you’ll receive the funds if you have a positive balance, such as a check, money order, or account transfer.
Next, open a new account where you can set up your direct deposits and automatic bill payments. Transfer funds quickly to the new account.
You should also check your ChexSystems report if your account was involuntarily closed due to suspected fraud or an unpaid negative balance. You can get a free copy of your report every 12 months and dispute inaccurate records. If you’ve resolved unpaid bank account balances, you can request that the bank remove the closure from your ChexSystems report.
Can You Appeal a Bank Account Closure?
Reversing a bank account closure is possible, but it depends on the reason for the closure. Start with customer service and escalate if needed. You may need to speak with a supervisor or take the issue to the bank’s ombudsman or regulatory agency.
If there was a mistake or a fixable issue, such as a mismatched name or an overdrawn balance, you can work with the bank to address the problem. Account closures for suspicion of fraud, illegal activity, or policy violations are less likely to be reversed.
“Most banks will likely have a formal method for you to complain,” says personal finance expert Barry Choi. “It could start off with you contacting a customer service agent who then gets a manager involved. If you’re not happy with the resolution, you’d likely have to go to the ombudsman.”
Choi says the process of appealing a bank account closure is lengthy. So even if the decision is reversed, you may have already moved on to a different financial institution.
If you can’t resolve the issue with the bank, you can file a complaint with the Office of the Comptroller of the Currency. Disputing incorrect account closure information with ChexSystems can help you avoid problems opening a new bank account.
How to Avoid an Involuntary Bank Account Closure
The best way to avoid a surprise bank account closure is to maintain your account responsibly, avoiding negative balances, fraud, and illegal activity. Use these tips to keep your bank account in the clear:
- Maintain activity, a positive balance and set up alerts for low balances.
- Avoid behavior that could be misinterpreted as fraud, such as large unexplained deposits or inconsistent usage.
- Follow the terms and conditions, such as maintaining a minimum balance and avoiding overdrafts.
- Set up a backup account at another bank so you can quickly move funds over if your primary account is closed.
“To reduce the risk of an unexpected account closure, consumers should maintain transparency and consistency in how the account is used,” says Kayikchyan. “That starts with avoiding behavior that could trigger risk flags, such as frequent overdrafts, large unexplained transfers, or using a personal account for business transactions.”
