When you open an account with a bank, you must abide by their rules. If you go against them, they may decide to freeze your account, restrict it, or worse, close it. While it’s common for banks to freeze your account, you may wonder if it’s possible for banks to close an account.
Banks can close your account, for example, they can do so, if your account has been inactive for a long time, or if it poses monetary risks due to unusual or fraudulent activities.
Imagine your bank account as a car; your bank is the driver, while you are the passenger. At any time, your bank can decide to stop the car and politely ask you to alight. You can also alight when you want to. In this post, I have discussed the possibility of a bank closing your account.
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Can Banks Close Your Account?
One of the most heart-breaking experiences is when your bank decides to deactivate your account. When that happens, what do you do? Is it even possible for a bank to close your account? If yes, for what reasons?
- Inactivity
You may think, “Can a bank close your account for inactivity?” The answer is yes. You see, banks may close your account due to inactivity as a result of the expenses of maintaining the account. While the cost incurred by each inactive account is small, the overall total of all accounts can affect the bank’s balance sheet.
Generally, these costs include record keeping, mailing out paper statements, and providing online security and data storage. Banks can charge monthly inactive fees, but if your account is empty, it’ll be closed after some time.
An account shut for inactivity may be reopened if a deposit is made within a certain time. But, if you decide not to let the account collect dust for a minimum of three years, the account may be considered unclaimed property and sent to your state.
- Accounts that pose monetary risks
Another reason your bank may pull the plugs on your account is that it may pose monetary risks. Accounts that are often overdrawn or constantly bounced checks could make financial institutions lose money. Thus, these accounts are watched, and banks may leave accounts open but stop transactions until negative balances are settled completely.
Accounts with progressive negative balances will eventually be closed, with the amount of time allowed to the owner to pay the balance determined by each bank or financial institution. When the account is shut, the bank pays the debit balance and sends the account to collections.
- Unusual or fraudulent activity
Banks keep close tabs on accounts for activities that raise awareness in terms of strange or potentially fraudulent activity. An example of an unusual activity would be an account with many deposits larger than the account owner’s yearly salary. For instance, a bank would become suspicious of consistently large cash deposits into an account of a teenager. You might also have tried to deposit fraudulent checks.
Business accounts often being debited for charge-backs also pique the bank’s interest, as this gives the impression that the offending business is processing credit card transactions that are later disputed, generate complaints or are found to be wrong. Banks can shut such accounts at any time.
- Closure without cause
Banks can close accounts at their discretion, and there are no federal banking laws that outline the rules for closing accounts. This means that a bank can close an account without cause. Each bank has its rules for closing accounts.
These actions are covered by the Terms and Conditions or the Deposit Account Agreement given to account owners when an account is opened. In general, the law that covers account closures includes the bank’s right to shut an account at any given time, as well as giving notifications and the return of any deposited funds within a certain time.
Can Banks Deactivate Your Account?
Of course, banks can close your account whenever they want, just as you can decide to end your relationship with them whenever you feel like it. However, you should note that banks wouldn’t close your account unnecessarily. There are laws that stop banks from closing accounts based on irrelevant things like race. However, if you are a poor customer and your account goes delinquent, trust banks to do the needful.
How to Avoid Having Your Bank Close Your Account
No one wants their account to be closed. The best way to ensure it doesn’t happen is by avoiding a negative balance. Even if your account offers overdraft services, you will be paying a lot of money in overdraft fees, and you may be trapped in a situation where more and more of your salary goes toward settling overdraft fees.
If you are using the overdraft services of your bank, you need to stop it. You can do that by reducing your spending and speaking with your bank about a plan to repay the fees, so you have money to settle your bills. You may need to consider selling something or taking on an extra job to recover from being overdrawn. You need to plan until you are out of the situation.
If you have not already, you should set up a bare-bones budget and start putting your extra money into settling the bank and paying other bills. Of course, this may be difficult as it may result in you spending less on luxuries and end things like your cable sub and gym membership, but it’s definitely worth it.
