Banks are financial institutions charged with securing your money, and when needed, they make it available to you via any means you prefer. The federal government also tasks this financial institution to keep close tabs on illicit acts like money laundering, terrorism financing, and other money-related crimes. In light of that, the chances are that your bank may freeze your account if they link a suspicious transaction to your account. But why do banks do that? Why do they freeze customers’ accounts?
Banks can freeze your account for four major reasons, which are: your security, account inactivity, unpaid debt and suspicious activity.
Banks are often very meticulous in their operations, and this shouldn’t come as a surprise to you as sometimes their services are used to facilitate crimes. Ever since the unfortunate 9/11 incident, banks have implemented several measures to avoid a repeat. One of the measures set up is the freezing of accounts with suspicious activities. If your account is frozen after you deposited a huge amount of money, you’ll be confused. At the same time, you’ll definitely want to know the reason for the freeze. In this article, I have highlighted four reasons why banks freeze accounts.
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Why Do Banks Freeze Accounts?
Your bank account can be frozen for several reasons. Banks or financial institutions can freese your bank account if they suspect any unusual transfer from your account. Or when a credit card company or a debt collector has a court judgment against you, probably due to unpaid debt.
Once your bank gets your account frozen, you cannot initiate withdrawals, but you can only put money into your account until the freeze is taken off. Joint accounts can also be frozen.
Since banks usually don’t alert you before freezing your account, it can be one of the challenging experiences, particularly when you discover that while making purchases at the store or the ATM or during an urgent need of cash. This is because banks are authorized to freeze your account pronto without even giving you a heads up after receiving a levy notice. This is to prevent you from tampering with the money.
What Is an Account Freeze?
An account freeze essentially means your bank suspends you from carrying out certain transactions. You can still access your account, but there are restrictions to what you can do.
Of course, after an account freeze, you can keep close tabs on your account and receive deposits and your paycheck. But the freeze halts any withdrawals or transfers from happening. So whatever is deposited into the account during this time remains there. This includes any preauthorized payments you may have scheduled to go through your checking account. So if you have urgent expenses to take care of, say a rent or mortgage payment, a car loan payment, or a monthly charge for your gym membership, there is a good possibility they won’t go through.
Why Banks Might Freeze the Accounts:
For your security:
One of the main reasons why banks may freeze your account is due to security reasons. For instance, if your banks notice an unusual transaction on your account, say you are attempting to transfer the entire money in your account, they may suspect that your account was hacked. In light of that, your bank will proceed to freeze the account pending confirmation from you.
Depending on the bank you use, you may receive a notice by email, phone, or post regarding a security freeze. The notice will come with instructions on the next step you should take.
For suspicious activity:
Here is another common reason you may wake up one morning and discover that your account has been frozen. Trust your bank to freeze your account if it feels that the recent transactions on your account are suspicious. Even if you aren’t a criminal or a money launderer, a bank will not take any chances. They will freeze your account and wait for you to provide explanations.
Here are common activities that can trigger an account to be frozen and investigated:
- Frequent cash transactions
- Income transactions from strange sources or jurisdictions
- A sudden rise in inactivity
Account inactivity:
Banks become suspicious when an account opened for business purposes fails to show signs of activity or has any background of transactions.
After all, why will a company open a bank account and leave it idle? After monitoring the account for a while, a bank may freeze it pending its owner’s explanation.
Unpaid debt:
If you default on your debt, your creditor or debt collector will adopt several tactics to compel you to pay what you owe. One of those tactics is freezing your account.
Before going ahead with this action, they must first obtain authorization from the courts. They often do this by getting a court judgment for debt written against you. The judgment is sent to the bank and preserved in a file.
If this happens, you should immediately get the creditor’s attorney’s details and devise a payment schedule to lift the restriction placed on your account.
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Can You Use Your Bank Account When It’s Frozen?
Not completely. If your account gets frozen, you can still receive incoming payments. However, withdrawals and outgoing transfers are not allowed. This means that whatever is deposited into the account during this period stays inside the account until the account’s restriction is lifted.
How Long Can Your Bank Account Be Frozen?
As said, your account can be frozen for several reasons. Sometimes, you may not be involved in any illegal activity or owe a creditor. Your account can be frozen for security or suspicious activity, and when that happens, you will want to know when it will be unfrozen. That said, how long can your bank account be frozen?
It all depends on why your bank account was frozen. If your bank account was frozen because the bank is investigating your transactions, it might last for 10 days for simpler cases or around 30 days for more complex cases.
One cannot predict the time it’ll take for a bank to unfreeze your account. The time could differ for each bank. However, if the case for the freeze is severe, you expect the freeze to last until the issue surrounding the freeze is solved.
