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Maintaining a bank account is vital for managing your money, but it can be unsettling if an account gets closed suddenly. Read on to discover six common reasons why banks may close your account, how to prevent it from happening and what to do if it happens to you.
1. Your Account Is Inactive
Your bank could decide to close your account if you haven't been using it enough (or at all). If there have been no debit or check transactions for at least three years, the bank might consider the account abandoned and refer it to your state's unclaimed property program.
To prevent this, it's a good idea to make occasional transactions with your account, like making a purchase or paying a bill every few months. Banks are usually required to try contacting you before closing the account, but rules regarding unclaimed property can vary between states. Contact your bank if you have questions.
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2. You Have Too Many Bounced Checks or Overdraft Fees
If you frequently overdraw your account or have a history of insufficient funds, the bank may decide to close your account due to concerns about your ability to manage your finances responsibly. Making a budget can help you take control of your financial life and avoid bouncing checks and paying a lot in overdraft fees.
3. Your Account Has a Negative Balance
When a bank account is in the negative, it means you owe money to the bank because you've spent more than you had in the account. Your bank might close your account if it consistently remains negative.
If you find yourself in this position, do what you can to get your account into good standing by depositing money to cover the negative balance right away. If it's happening a lot, it might also be time to look into cutting expenses or increasing your income.
4. Your Account Is Flagged for Suspicious Activity
Banks are legally required to monitor accounts for suspicious transactions or activities that could indicate money laundering, fraud or other illicit activities. Suspicious activities that commonly get flagged include unusual patterns of cash deposits, many international wire payments or electronic transfers, potential links to illegal businesses or scams, large cash withdrawals and trouble verifying your identity.
If your account is flagged for suspicious behavior and the bank can't verify the legitimacy of your transactions, they may choose to close your account to reduce risk and comply with regulations.
5. You Violated Your Account Policy
When you signed up for your bank account, you agreed to follow specific rules that govern how the account works. One common reason accounts get closed is violation of these rules, known as terms and conditions. For example, some banks won't allow you to use a business account for personal purposes and vice versa, although there are exceptions. If you're considering using your account differently, check with your bank beforehand to ensure your actions are within your account's rules.
6. You Have a Criminal Conviction
Sometimes, a bank might close an account if they discover a client has a criminal history, especially if the conviction is financial in nature (such as fraud or money laundering). A run-in with the law doesn't mean your account will automatically be closed, but it's possible. If you're in this position and think an account closure is likely to happen to you, take some time to find backup financial institutions you could use if your current account were to be closed.
Frequently Asked Questions
If your bank closes your account without notice, there are a few things you can do. First, contact your bank for an explanation. If you find the bank's answer vague, don't be surprised: Sometimes, the decision to close an account is based on faceless data in a system. Also, know that legally, banks are not required to tell you if they filed a suspicious activity report on your account. If you think your account was truly wrongfully closed, you can file a written complaint with the Office of the Comptroller's Customer Assistance Group. You'll likely want to take your business to another bank, too, so research other financial institutions that fit your needs. If you have trouble opening a traditional account, consider alternative options like a second chance account.
If you're wondering whether the bank can close your account for no reason, the answer is basically yes. That said, it's still worth contacting the bank to ask why your account was closed so you can be armed with any critical information to take the next steps.
Whether a closed bank account impacts your credit depends on whether you have a credit line associated with that bank. If the bank closes one account, they generally close all your associated accounts. So, if you have a line of credit connected to that particular bank or account, you could get a negative mark on your credit report due to the closed account—especially if it's one you've had for a while.
The Bottom Line
Banks close accounts for various reasons, from suspecting fraudulent activity to prolonged inactivity. The best way to protect your account is to keep enough money in it, be proactive about knowing your bank's policies and follow any rules associated with it. But if you find yourself dealing with a closed account anyway, know there are steps you can take to get back on track, manage your money and keep your finances secure for the future.