Closing a bank account can be inconvenient, especially if you don’t foresee it. But why would a bank close your account? The short answer is that banks and credit unions can close accounts for a number of reasons. Understanding why a bank account might be closed can help you avoid an unpleasant financial situation.
One Financial Advisor can guide you through different banking options for your financial plan.
Why would a bank close your account?
Banks may choose to close accounts for different reasons, although some may be more common than others. Here are six common situations when a bank may close your account:
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inactive. You can open a new bank account intend to transfer funds from your existing bank. Or maybe you just opened a new checking or savings account to take advantage of the referral bonus. If you do not make your initial deposit by a certain date or there is no activity on the account for a specific period of time, the bank may close your account.
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Negative balance. When a bank account has a negative balance, it means you don’t have any money to spend. You need to make a deposit to get your account balance positive again. Banks can close your account if you have a negative balance and there is no sign of deposit to fix it.
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Overdraft overdraft. overdraft occurs when debit transactions exceed your available balance, leaving you with a negative balance. Most banks charge an overdraft fee when that happens, which can send your account deeper into the red. If overdraft fees pile up, your bank may close your account to prevent you from completing new transactions.
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Check bounced. Returning a check means you don’t have enough money in your account to cover the amount. Banks may close accounts with a history of writing bad checks or accept bad checks for deposits and withdrawals.
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Cheat. Banks can sometimes close accounts if they suspect fraud. For example, a bank may freeze your account if it believes someone is trying to use your information to make unauthorized purchases or withdrawals. Banks can also close accounts if they believe the account holder is engaging in fraudulent or criminal activity, such as money laundering.
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Policy violation. Your bank account may be closed if the bank thinks you have violated one or more of their policies. For example, if your bank has a policy about daily ATM withdrawal limits and they find that you are constantly trying to exceed those limits, the bank may close your account.
Can a bank legally close your account without your permission?
Banks and credit unions can close accounts without the account holder’s permission. Depending on where you live, state law may require your bank or credit union to give you advance notice, but the bank doesn’t need to ask if it can close your account.
What happens if a bank closes your account? Lost money in your account?
The good news is that if a bank closes your account, it is obligated to return the money in the account to you less any closing fees or charges that may apply. Let’s say you deposit $500 into a new checking account, but six months later, you’re not using it. The bank may close your account for inactivity and charge you $30, then return the remaining $470 to you.
Payment usually arrives in the form of a check sent to the address you have on file. Now, what if the bank closes your account with a negative balance?
In that case, you must deposit to bring the balance to zero. Otherwise, you will owe the bank and your account may be reported. ChexSystems. ChexSystems is a consumer reporting agency that collects information related to bank account closures. Having a negative sign in your ChexSystems report can make it more difficult to open a new account at another bank.
Can a closed bank account be reopened?
Whether you can reopen a closed bank account depends on the circumstances. if you self-closing accountthen re-opening the account can be as simple as asking your bank to reactivate the account.
If your bank closes your account, you must first understand the reason for closing the account. For example, if a bank closes your account on suspicion of fraud but you can prove that no fraud occurred, the bank may be willing to reactivate your account.
On the other hand, if your bank closes your account due to multiple overdrafts or bounced checks, it may not be possible to get it back. You may simply represent too much of a risk to the bank based on your previous account history.
What to do if your bank account is closed
If your bank account is closed without warning, it’s important to know what to do next. There is a chance that you can recover your account. It’s at least helpful to understand what happened so you can avoid repeating the situation.
Here are five things you can do if your bank account is closed:
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Contact the bank. The first thing you’ll want to do is contact your bank to ask for an explanation of the closure. The reason will help you decide what to do next to correct the situation.
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Consider your options. Once you know why your bank account was closed, you can figure out how to fix it. For example, if a negative balance is the reason, you can send money to clear what is owed. Or if your bank closes your account due to inactivity, you can ask for your money back so you can deposit it in another account.
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Request to reopen the account. If you want to continue using the same bank, you can request to have your account reopened. Whether it makes sense to do so may depend on the reason for the closure and your overall satisfaction with the bank.
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Check your ChexSystems report. When a bank account is closed for a negative reason, it may show up on your ChexSystems report. You can request a free copy of your statements through the ChexSystems website to see what your bank reports. That can help you gauge your chances of being denied opening a bank account elsewhere.
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Open a new bank account. If you decide not to reopen a closed account or the bank is unwilling to do so, you may need to open a new account. Remember that if your account is closed due to overdraft, check bounce or cheat, that may limit your options. You may need to explore second-chance bank accounts, designed for people with a negative banking history.
bottom line
Why would a bank close your account? The simple answer is that it all depends on the details of the situation. Knowing what to do next when a bank account is closed can help you minimize disruptions to your financial life.
Tips for checking accounts
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Consider talking to you Financial Advisor about which bank account might work best for you, based on your money goals. SmartAsset’s free tool connects you with up to three vetted financial advisors serving your area, and you can interview the right advisors for you for free to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start right now.
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When comparing checking or savings accounts, it’s important to consider how well they fit your needs. A traditional checking account may offer branch banking access, but you may enjoy better perks or benefits with a checking account from online banking. consider best account check and best savings account can help you find the right account options for you.
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