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 If you haven't deposited or withdrawn money from the account in months or years, your bank may decide to shut it down so it doesn't have to maintain it anymore.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.
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
Even if your bank doesn't insist on a minimum balance, they could shut down your account if you don't pay off your negative balance and fees. Suspicion of fraudulent activity: If your bank suspects fraudulent transactions on your account, they may close it to prevent further illegal activity.
Why would a bank randomly close your account? ›
Even if your bank doesn't insist on a minimum balance, they could shut down your account if you don't pay off your negative balance and fees. Suspicion of fraudulent activity: If your bank suspects fraudulent transactions on your account, they may close it to prevent further illegal activity.
What is a valid reason for closing a bank account? ›
Banks reserve the right to cancel your account for certain activities. Some of the most common reasons for cancellation are inactivity, negative balances, or fraud.
Can you reopen a closed bank 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.
What causes a bank to close? ›
Banks can fail for a variety of reasons including undercapitalization, liquidity, safety and soundness, and fraud. The chartering agency has the authority to terminate the bank's charter and appoint the FDIC to resolve the failure.
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.
Can a bank close your account without telling you why? ›
Yes. 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.
Can you get your money back if a bank closes your account? ›
Get your money back from the bank
If the bank closed your account and there is money still in it, you're due a refund. The bank will typically send you a check, but if it suspects criminal activity on your part, it may be allowed to freeze your assets.
Can a bank legally hold your money after closing your account? ›
If you have money in the account at the time it's closed, the bank is required to return it to you minus any outstanding fees. If an automatic deposit is made into that account after it's closed, those funds must also be returned.
Can my bank close my account without my permission? ›
A bank can shut a person's account at any time, with limited notice, for a long list of reasons and are generally not legally required to say why. This can cause confusion and financial problems for many people, especially when they believe they haven't done anything wrong.
The most common reasons include suspicious account activity, too many overdraft fees and account policy violations.
Are banks crashing in 2024? ›
State regulators closed Republic First Bank in April 2024, marking the first bank failure of the year. Fulton Bank entered into an agreement with the FDIC to purchase most of Republic First's $6 billion in assets and to assume most of its $4 billion in deposit liabilities.
Can you lose your money if a bank closes? ›
For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.
Can a bank close your account without giving a reason? ›
A bank can shut a person's account at any time, with limited notice, for a long list of reasons and are generally not legally required to say why. This can cause confusion and financial problems for many people, especially when they believe they haven't done anything wrong.
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.
Is it bad to let your bank account close? ›
When closing a bank account, a common question people ask is whether it will negatively impact their credit scores. Fortunately, closing a savings or checking account that's in good standing won't hurt your credit in any way.
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.
