Does a Bank Need to Notify You That They’re Closing Your Account?

You’re at the checkout line in the grocery store. Your items are already bagged. You tap your card, and it’s declined. Frustrated, you try your card again, but the result is the same. You check your banking account app to find an answer, only to discover your account has been closed.

Your bank or financial institution can close your account for many reasons without warning or notice. The result can be nothing short of a financial headache. If your bank closes your account, contact them immediately to find out the reason why and take the appropriate steps to reopen it or open a new account at another bank if possible.

Generally, banks can close your account without your permission, and they don’t need to notify you to do it. However, you should receive a notification after the fact explaining why your account was shut down.

Of course, the bank must return any remaining funds in your account but may hold on to them to cover any negative balance or fees. In some cases, the bank may hold the funds if your account is flagged for suspicious activities, which is increasingly common. Regularly reviewing your account messages from your bank can help you avoid being surprised by an unexpected account closure.

Why a Bank Might Close Your Account

There are a wide variety of reasons why a bank might close your account, such as:

• Inactive or low activity: Banks may discontinue your account if you haven’t had a check or debit transaction in a long time. Generally, though, your account must show little or no activity for a few years before the bank shuts down your account.
• Zero or negative balance: Most banks require you to deposit funds when you open your account or within a specific time frame. If you don’t deposit funds as outlined in your bank’s terms and conditions, they could close your account.
• Suspicion of fraudulent activity: If your bank suspects fraudulent transactions on your account, they may close it to prevent further illegal activity.
• Excessive bounced checks or overdraft fees: Banks often close the accounts of customers who frequently bounce checks.
• Account policy violation: Another common reason for account closure is breaching the account’s terms and conditions.
• High volume of account transfers: Some banks limit the number of transfers you can make between accounts.
• Criminal conviction: Banks and financial institutions are regulated by the Treasury Department and other agencies. They may close the account of someone who doesn’t disclose a criminal conviction when opening their account or who is later convicted of a crime as an account holder.

4 Steps to Take if Your Bank Account Gets Closed

Having a bank account closed could make it harder to open a new account right away, although you can take steps to make it easier to open a new account. Here are four steps to better understand why your account was closed, resolve the issue and minimize any collateral damage:

1. Contact the bank: Call the number on the back of your debit card or find the bank’s contact number online to request information as to why they closed your account.
2. Settle the balance (or request a check): Ask what your bank balance is. If you have a negative balance, ask what the options are to pay it off. If you have a positive balance, ask how you will receive those funds.
3. Request to reopen the account: In some cases, the bank may reactivate a dormant or inactive account when you make a deposit or withdrawal.
4. Redirect direct deposits and payments: Consider stopping any direct payments to your account, including your paychecks, and either receiving a check or redirecting deposits to a secondary account.

The Consequences of a Bank Closure

It’s bad enough when your bank closes your account, but the consequences can add salt to the wound. Here are some of the consequences of a bank closure you might encounter, and what you can do about them:

• Account Closure Reported to ChexSystems: If your bank account was involuntarily closed because of an unpaid balance or suspected fraud, it could affect your ability to open a bank account in the future.
• Balance Could Be Turned Over to a Collection Agency: Unpaid bank balances could be forwarded to a collection agency, which can affect your credit scores for up to seven years.
• May Be Temporarily Bankless: It could be difficult to find another bank willing to work with you, especially if your bank reports the closure to ChexSystems.

How to Avoid Bank Account Closures

Perhaps the best way to avoid a closure on your account is to prevent your balance from dipping into negative territory. Set up low-balance alerts to stay on top of things. Regularly checking your balance is generally a good financial habit to keep your account out of trouble. Similarly, it’s also wise to use your account regularly to avoid a closure due to inactivity.

Some banking experts recommend depositing large checks in person to avoid problems with your bank. That’s because banks may turn a suspicious eye towards large checks, particularly if you don’t normally deposit such sizable amounts.

Some banks and fintech companies offer second chance banking products that are easier to qualify for and may not require a ChexSystems report. Using this type of account could help you manage your cash and rebuild a positive banking history for the future.

The Bottom Line

Closing a bank account may not directly affect your credit. However, consequences stemming from a closure could indirectly harm your credit scores. For example, if your account is closed and an automatic payment isn’t made to one of your debt accounts, it could appear as a late payment on your credit report for seven years and impact your scores.

Consider getting free credit monitoring by Experian to stay on top of your credit with an updated report every day. You’ll also receive real-time alerts about new inquiries and accounts and any suspicious activity detected on your Experian credit report.