My bank closed my account. What can I do about it?

Receiving a notice that your bank account has been closed suddenly can create a wave of stress. What happened? Will this ruin your credit? Is someone trying to steal your identity? Those worries are understandable, but before you let panic set in, read on to understand why a bank might close your account, what you can do next and how to avoid this in the future.

Why would a bank close your account?

It’s important to understand that banks have the right to close accounts based on their discretion and internal policies. There are several reasons a bank might decide to close your account:

• Inactivity or low activity over an extended period of time.
• Having a zero or negative balance
• Excessive bounced checks or overdraft fees.
• Flagged for suspicious activities or violating the account’s policies.  

What happens when a bank closes your account?

When a bank closes your account, several things can happen:

• You’ll receive any remaining balance: The bank typically mails you a check for the money left in your account.
• It may be reported to ChexSystems: If the closure was due to suspected fraud or unpaid fees, it could affect your ability to open accounts elsewhere.
• Automatic payments and deposits stop: Any scheduled transactions will fail, which could cause late fees or missed income.

What to do if your bank closes your account

If you find your bank account suddenly closed, it’s essential to take prompt action. Here’s what you can do:

• Contact the bank immediately: As soon as you become aware of the account closure, reach out to your bank. Ask them for the specific reasons for the closure and inquire about the procedure to collect any remaining funds.
• Look into reactivation options: Depending on your bank or credit union, you may be able to request to reopen the account if it was closed simply due to inactivity, for example.
• Stop direct deposits and automatic withdrawals: To avoid bouncing checks or missing bill payments, move any automatic payments linked to the closed account to a different account or cancel the automatic payment and find a way to make the payment manually. Additionally, if you’re expecting to receive a payment soon, make sure to reach out to whoever is sending you money to request cash or a physical check. Then, you’ll be able to make the deposit later – instead of having a direct deposit fail.
• Make an interim plan for your money management. The bank will send you the money you’re due (as long as the account is in good standing), but you may need to wait for a physical check. While you wait, you’ll want to make sure you can cover your regular costs through a different account or credit card.
• Settle any outstanding balances: If your account was closed due to a negative balance, find out how to settle the amount. Clearing this debt is crucial to prevent it from being sent to a collection agency, which could harm your credit score.
• File a complaint if necessary: You can submit a complaint to the federal Office of the Comptroller’s Customer Assistance Group if you believe your account was wrongly closed.
• Explore other banking options: Start looking for new banking options. If you’re having difficulty opening a new account due to your banking history, consider second-chance bank accounts designed for customers with past banking issues.

How to avoid a bank account closure

Here are some proactive steps you can take to keep your bank account from being closed:

• Handle checks with caution: To prevent check fraud, be careful with how you handle checks. If you need to mail checks, take them directly to the post office. Avoid accepting checks from people you don’t know.
• Stay in communication with your bank: Respond promptly to any communications from your bank. If you plan to make any significant financial changes, such as a large deposit or lifestyle shift, inform your bank ahead of time.
• Sign up for alerts and notifications: Enroll in your bank’s notification services. These alerts can help you monitor your account balance and transactions, helping you avoid falling below minimum balance requirements and detecting potential fraud.
• Maintain account activity: Regular account activity demonstrates to the bank that your account is not a risk. Some institutions assign the “inactive” label to an account after six months of it being unused — the first step on the way to closing the account. Avoid keeping your account at a zero or negative balance and ensure you use your account regularly.
• Avoid high-risk transactions: If possible, avoid transactions or business activities that banks might consider high-risk, such as online gambling.

FAQs about a closed bank account

• Does a bank need to alert you to a closed account?

  While banks can close your account without prior notice, they typically will notify you after the fact to explain the closure and guide you on how to retrieve any remaining funds. It’s crucial to reach out to your bank promptly if your account is closed to understand why and secure your balance.

• What happens to the money in a bank account if closed?

  If your bank account is closed with a balance remaining, the bank will issue a refund, typically by mailing you a check. If the account is closed due to suspected criminal activity, the bank has the right to freeze your assets.

• What happens when my bank account is locked?

  If your bank account is locked, you can still view your account and make deposits, but withdrawals and transfers are blocked. Autopay bills will also fail, as previously authorized transactions are stopped.

• What do I do if my bank shuts down?

  If your entire bank shuts down — as in a bank failure, not just a branch closing its doors — you will hear from the FDIC about where your deposits are going. In most cases, the Federal Deposit Insurance Corp. (FDIC) works to find another healthy institution to acquire a failed bank, so your money will move to a new home. If you are repaying a loan at that failing bank, you should take steps to ensure that you are continuing to make those payments. Reach out to the FDIC or the acquiring bank to verify you and the new bank have all the correct information.

Bottom line

The unexpected closure of a bank account can be both inconvenient and worrying, but there are steps you can take to prevent it from happening. By staying informed, communicating with your bank and being responsible with your account, you can avoid the potential financial impact and maintain a healthy banking relationship.