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You may not think it could happen to you. A bank generally can close your account at any time and for any reason—and sometimes without notifying you in advance. Reasons a bank may shut down your account include using your account very little or not at all, or bouncing too many checks.
While it may come as a shock when your bank account is closed, you can take steps after it happens to safeguard your money. In addition, you can make some moves to help ensure the bank never closes your account.
What Happens When a Bank Closes Your Account?
Your bank may notify you that it has closed your account, but it normally isn’t required to do so. The bank is required, however, to return your money, minus any unpaid fees or charges. The returned money likely will come in the form of a check. In some cases, your bank may close an account and switch it to a different type of account.
Why Did the Bank Close Your Account?
Your bank may shut down your account for several reasons. Here are eight of them.
Let’s say you haven’t written a single check in the past two years or have made only two debit card transactions in the past three years. Your bank may decide that because of the lack of regular activity, it’s going to close your account. Typically, though, it takes several years of little to no activity for a bank to pull the plug on an account.
Generally, a bank considers an account “abandoned” if the account holder fails to initiate any activity over a three- to five-year period, or if the account holder hasn’t contacted the bank during that time. The bank is usually required to contact the account holder if it decides to close the account. If money in an abandoned account goes unclaimed by the account holder, the cash may be turned over to a state’s unclaimed property program.
If your account contains no money, the bank might close it. Simply because an account says there are no minimums, does not mean the account should remain empty for days or months. The time frame will vary based on your individual bank and its practices. Another risk you take is that any monthly fees could reduce your balance to below zero, so it’s important to keep tabs on your bank account balances.
Bounced Checks or Overdrafts
If you’ve racked up too many bounced checks or too many overdrafts, your bank may close your account.
When you repeatedly bounce checks, your bank likely will shut down your account.
In the case of overdrafts—when your bank covers transactions, even though there’s not enough money in your account—your bank likely won’t close your account until there’s enough money in it to at least pay for the overdrafts and any overdraft fees. Once that happens, the bank might close your account. Overdrafts can happen when you write a check, make a debit card payment or carry out an ATM transaction that sends your account balance into negative territory.
Too Many Transfers
Banks impose limits on how many transfers you can make between certain types of accounts, such as a checking account and savings account. If you exceed those limits, the bank might close at least one of the accounts. Or, in the case of a savings account where you repeatedly exceed the Regulation D transfer limits, it could be converted into a checking account instead.
Suspected Identity Theft
If your bank thinks you’ve been the victim of identity theft, it may close your account to prevent further fraudulent activity.
The bank also might shut down your account if it suspects you’re committing suspicious or illegal activity, such as money laundering. Large and regular transfers or withdrawals of money are among the actions that may raise a red flag.
If you have a previous criminal conviction that you didn’t report to your bank, but the bank then finds out about it, the bank might close your account. Your account could also be closed if you’re convicted of a crime after opening your account.
A bank might close your account if you get into a business that’s deemed high risk. This may include gun sales, marijuana sales, online gambling or escort services.
Changes at the Bank
If your bank stops doing business in your state, shuts down branches in your area or exits the banking business altogether, it may very well close your account.
What To Do When Your Bank Has Closed Your Account
Here are seven steps you should take when your bank has closed your account:
- Contact the bank. Particularly if you haven’t already been notified of the closure, reaching out to the bank will enable you to find out why the account was closed and what you need to do to receive your funds.
- Maintain a paper trail. Hold onto all written communication you receive about the account closure, keep notes of every phone call you have with a bank representative and jot down the name of every person you speak with.
- Halt direct deposits and automatic withdrawals (such as bill payments). This lets you avoid additional fees and ensures you’ve got access to direct-deposited money.
- Review your account for outstanding checks. If any checks remain uncashed, contact the payees and set up a different payment method to prevent bounced checks.
- Get a copy of your ChexSystems report. ChexSystems, which tracks checking and savings account activity, generates reports detailing your banking activities and listing reasons for any account closures.
- If necessary, file a complaint. If you believe your account was wrongly closed, submit a complaint to the federal Office of the Comptroller’s Customer Assistance Group.
- Explore your options. If your bank has closed your account, you might see whether you can open another type of account at the same bank (such as a prepaid account or a “second chance” account), switch to another bank, use a prepaid debit card, use a digital payments app like PayPal or simply go without a bank account.
How To Avoid Having Your Bank Close Your Account
Fortunately, you can make moves to avoid having your bank close your account. Among them are:
- Regularly checking your balance, especially before making a big payment or writing a sizable check. You can do this online, via a mobile app or over the phone.
- Using your account, even infrequently, so it doesn’t go dormant.
- Signing up for text or email alerts that inform you when your balance dips below a certain amount.
- Finding out when money that’s been deposited will actually be available. Banks sometimes put a hold on deposits, meaning the money isn’t available as soon as it hits your account.
- Not making payments unless there’s enough money in your account to cover them.
- Keeping track of when automatic withdrawals are made, such as rent and utility payments.
- Switching to an account that doesn’t allow overdrafts to curb overspending.
- Linking accounts so that, if the balance in one drops substantially, money can easily be transferred into it from another account.
- Reviewing your monthly bank statements to check for errors.
If your bank closes your account—for whatever reason—you have options, whether with your existing bank or credit union or with another financial provider. Also, by better understanding why an account could be closed, you can take steps in advance to help avoid being put in this situation.