Imagine you're about to pay for groceries. You pull out your debit card only to be told the charge was declined by your bank. You wonder what gives. You've never had so much as an overdraft, and know that there's plenty in your checking account to cover the cost of groceries. Only later do you learn that the bank has closed your account.
Why would a bank close an account?
There are a number of reasons a bank may close an account. They include:
- The account is inactive
- The account has a negative balance
- The bank suspects you of committing fraud
- You have an excess of overdraft fees
- You break a bank policy
Must the bank notify you?
No. It may come as a surprise that banks can close an account for any reason and are not required to provide notice. Let's say you have several bank accounts and rarely use one of them. It's possible you won't know that the account is closed until you attempt to access funds.
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What happens to the money?
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. Typically, the bank will send a check.
If your account has been inactive for years and the bank doesn't know where to find you, the money may have been sent to the unclaimed property office in your state. Retrieving the funds is as easy as contacting the appropriate office and providing pieces of information that prove your identity.
Why does it matter?
Having a bank account involuntarily closed can be a hassle for years to come. Here's how:
When a bank closes an account because of an unpaid balance or suspected fraud, it's reported to a company called ChexSystems. Banks routinely request a report from ChexSystems before allowing a new customer to open an account, making it difficult for you to open a new account with another bank.
If an account is closed due to an unpaid bank balance, that debt could be forwarded to a collection agency. Once it's forwarded, that action is reported to the credit bureaus and can affect your credit score for up to seven years.
There are several pieces of good news here, though. The first is that you're entitled to a free copy of your ChexSystems report once a year. Look it over, and if you find any mistakes, dispute them with ChexSystems. Also, as soon as you pay off any outstanding balances with your old bank, you can request to have the record removed from your ChexSystems report. Finally, there are banks that do not rely on ChexSystems to screen new customers.
If you want to stay with your bank
Changing banks can be time-consuming. If you decide that you want to stay with your bank after an account is involuntarily closed, here are three steps you can take:
- Find out why the account was closed. Call your bank and ask it to explain why they chose to close the account.
- Pay the balance. If the reason the account was closed was due to an unpaid balance, find out how much it is and pay it off.
- Ask to reopen the account. Once your account balance is settled, the bank may be willing to reopen it. If it’s unable to do that, you can explore opening a new account with the same bank. If the bank won't allow you to open a new account, it's time to look for a new financial institution.
If you have any reason to believe your account was wrongfully closed, contact the Office of the Comptroller's (OCC) Customer Assistance Group.
Ideally, you'll never experience an involuntary bank account closure. However, if it happens, you have options.
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FAQs
Call the number on the back of your debit card or find the bank's contact number online to request information as to why they closed your account. Settle the balance (or request a check). Ask what your bank balance is. If you have a negative balance, ask what the options are to pay it off.
What to do if a bank closes your account? ›
Once a bank account is closed, it usually can't be reopened. You'll have to open a new bank account with your institution or bank somewhere else. Some banks have second chance bank accounts, which allow you to open a bank account regardless of whether you have a negative banking history.
What happens to my bank account if the bank closes? ›
Once your account is closed, you will lose access to any funds in that account. It's essential to communicate with the bank to transfer any remaining funds to another account swiftly. Depending on the reason for this closure, the bank can release or freeze your money to investigate potential fraud.
Can you withdraw money from a closed account? ›
A closed account refers to a deactivated or terminated account; in other words, it's no longer open and available for deposits and withdrawals.
What happens to my direct deposit if my bank account is closed? ›
If your account has been closed, the financial institution will return the direct deposit and a refund check will be mailed to you within 6 weeks of receipt of the returned direct deposit attempt.
What is a second chance bank account? ›
Second chance bank accounts are designed for individuals whose banking history prevents them from opening a regular checking account. This may include individuals who have been denied an account due to too many overdrafts or unpaid fees.
Does it look bad if a bank closes your 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.
Is your money safe if a bank closes? ›
As long as you do business with an FDIC-insured institution and keep less than $250,000 per account ownership category, your funds will be safe if your bank fails. However, you might face some minor inconveniences, such as waiting for a new debit card or updating your automatic payments.
Can I reopen my bank account if I closed it? ›
If you've closed your account (rather than a bank doing so), you can typically submit a request to reopen your account. This can be done online, over the phone, or by visiting a branch in person, with the exact process varying depending on the specific financial institution.
How do I get money out of my bank when it's closed? ›
Shortcuts
- The Post Office.
- Banking hubs.
- Mobile and pop-up banks.
- Cash machines (ATMs)
- Your local shop.
- Online banking.
You'll get your money back (usually). You may receive a check in the mail for the remaining balance, unless the bank suspects terrorism or other illegal activities. You can also go to a branch and receive a cashier's check for the account balance. Customer service may not be very helpful.
How do you get money out of a bank when its closed? ›
Your first instinct might be to head to a check cashing store, cash advance shop or payday loan shop, but these places tend to charge high fees. A better option is to cash your check at a retail store like Walmart or Kmart.
Why would a bank close your account without an explanation? ›
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.
What happens if you put money into a closed bank account? ›
If money gets sent to a closed bank account and the bank accepts the transfer, the bank may issue a check to the former account holder. Alternatively, the bank can reopen the account or contact the person and ask if they want to reopen the account to claim the funds.
Can I deposit money even if the bank is closed? ›
If your branch is closed or you don't want to wait in line, you can deposit cash with the ATM. Making cash deposits through ATMs is the closest you'll get to a cash deposit made directly at the bank itself. What's more, most banks and credit unions have far more ATM locations than they do physical bank branches.
What happens to deposits when a bank closes? ›
Deposit Payoff.
When there is no open bank acquirer for the deposits, the FDIC will pay the depositor directly by check up to the insured balance in each account. Such payments usually begin within a few days after the bank closing.
Can a bank legally close your account without permission? ›
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.
Does a closed bank account affect credit? ›
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.
How long do banks keep records after an account is closed? ›
Understanding Bank Policies for Closed Accounts
For checks, this retention period is 5 years. Beyond those minimums, banks will often keep records of closed accounts for 7-10 years after closure.
Should I pay off closed accounts on my credit report? ›
While closing an account may seem like a good idea, it could negatively affect your credit score. You can limit the damage of a closed account by paying off the balance. This can help even if you have to do so over time.
