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A bank account is essential for managing your day to day finances, so it can be very disconcerting if you find that your bank has closed your account.
In many scenarios, banks are not required to give notice before closing an account. So, here we’ll explore why a bank could close your account without warning.
Should I Get Notified Before an Account Gets Closed?
Depending on the reason for closure, banks may not be required to give you any notification before initiating an account closure. This means that in certain circumstances, your bank may not give you any warning before closing your account.
For example, if you have breached the bank terms and conditions, your bank may immediately close your account.
On the other hand, if your account is due to be closed due to being dormant, your bank is likely to send you several letters or emails, letting you know that if you don’t activate the account, it will be closed. This type of communication typically includes a deadline by which you need to take action, so you will have plenty of notice about when your account is due for closure.
Why Would a Bank Close Your Account?
There are several reasons why a bank may close your account. These include:
If you have not regularly used your bank account, specifically not written a check in two years or used your debit card in two or three years, the bank may see this lack of regular activity as an indicator that this is a dormant account.
It typically takes several years of little or no activity before a bank will initiate closure of a dormant account, but you will normally have several communications warning you.
If you have a zero balance on the account for a prolonged period, the bank may look to close the account. Even if your account has no minimums, if it is left with no money for an extended period, it is vulnerable to closure.
The time frame will depend on the bank policy and practices, but if you have an account that maintains a zero balance, you’ll need to watch out for this.
Generally, banks have limits on the number of transfers you can make between accounts. This applies to checking and savings accounts, so if you have an excessive number of transfers, the bank may close at least one of your accounts.
For example, if you have a savings account and you’ve repeatedly exceeded the Reg D limits, the bank may either close the account or convert it into a checking account.
If you regularly cause your account to go overdrawn without an agreed limit or you’ve bounced a lot of checks, your bank may decide to close your account.
Repeated check bouncing typically causes the account to be closed, but your bank may delay closing your account until you’ve brought your negative balance back into the black.
If your bank has suspicions that your identity has been stolen, it may close the account to prevent further fraudulent activities. Your bank may also initiate a closure if it suspects you are committing fraudulent or illegal activities such as money laundering.
Typical red flags include large transfers or withdrawals, particularly if this is outside your normal account transactions.
If you didn’t report a previous criminal conviction or you’ve recently been convicted of a crime, your bank may decide that they don’t want to offer you banking services and close your account.
When a bank closes branches in a particular area, no longer operates in a state or ceases banking completely, it may decide to close affected accounts. In this case, you are likely to have some warning, depending on the bank’s specific situation.
If you have changed occupation and the bank deems your new role or industry high-risk, it may close your bank account. The list of high-risk occupations includes online gambling, gun sales, escort services, and marijuana sales.
What Happens If a Bank Closes Your Account?
If a bank closes your account, you will no longer be able to use the account for your day to day banking. There are several implications of this, including:
- You’ll need to move your salary payment: You won’t want your salary to be direct deposited into the closed account. If your account was closed with a negative balance or owing fees, the bank may use your paycheck to cover these expenses. Even if your account does not have a negative balance, it could significantly delay your pay getting to you, which would impede you from paying your bills.
- You’ll need to move bill payments: Many of us use automatic payments to cover our bills including essential expenses such as rent and utilities. So, if your bank has closed your account, you will need to make alternative payment arrangements to avoid late fees and other issues with all of your creditors.
- You may have difficulties opening a new account: When a bank closes a customer’s account, it may be reported to ChexSystems. This means that when you submit an application for a new account, your new bank may be able to see these negative issues on your ChexSystems report. This may hinder you from opening a new account
How to Avoid Having Your Bank Close Your Account
Fortunately, there are some things that you can do to avoid having a bank close your account. These include:
- Monitor Your Balance: It is a good idea to check your balance regularly, particularly before you make a big payment or write a large check. Many banks allow you to do this online, over the phone or using an app. In fact, many bank apps allow you to set alerts, so you’ll be notified if your balance drops below a designated amount.
- Keep Using Your Account: Even if you can’t use your account frequently, try to keep using and managing the account , so you can avoid the account going dormant.
- Find Out When Deposits are Available: Just because money has been deposited into your account, it doesn’t mean that it is always immediately available. Banks may put hold on deposits, so the money is not available the moment it hits the account. So, check your bank policies and monitor your “available” balance.
- Track Your Spending: While keeping an eye on your balance is great, you should also keep track of your spending. Track automatic payments and your debit card use, so that you won’t make any payments if there is insufficient funds in the account to cover them.
- Review Your Statements: Many of us put our bank statements in a drawer or ignore the email each month, but you should review your statements. This will allow you to spot any errors and alert your bank.
As we discussed above, you don’t want your salary going into the account or creditors trying to take automatic payments, as you’ll incur additional fees.
So, you’ll need to review your bank statement and make alternative arrangements for your salary and bill payments.
Once you have the immediate financial issues organized, it is important to check the reason why your bank closed the account.
You could try contacting the bank to discuss the situation or request a copy of your ChexSystems report via the ChexSystems website.
If you feel that the account has been closed in error, you can dispute it with the bank or via the Consumer Financial Protection Bureau.
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Finally, you’ll need to look into opening a new account and moving all of your financial activities across. Depending on the reason for closure, this may be quite simple or rather involved.
If your account was closed due to your banking habits, you may need to look into second-chance banking or alternative account options.
Does Your Credit Score Hurt When The Bank Closes Your Account?
If a bank closes your account, it will impact your ChexSystem report, but it will not feature on your credit report and, therefore, will not affect your credit score.
The exception to this is if there is an unpaid balance outstanding on the account. This may be passed to a credit agency who will report the debt and any subsequent payment activity to the credit bureaus.
So, if you fail to repay the outstanding amount, it could cause your credit score to drop.
Your bank may still accept direct deposits, particularly if you have a negative balance, since the bank may use the funds to cover the debt.
In the case of auto bill payments, it is likely that the bank will not allow these transactions to go through, which could lead to a late or missed payment on your credit accounts.
Yes, a bank can close any type of account including a savings account for all the reasons we’ve covered in this article.
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