My bank closed my account. What do I do now?

Having a closed bank account can be inconvenient, especially if you didn’t see it coming. But why would a bank close your account? The short answer is that banks and credit unions can close accounts for any number of reasons. Understanding why a bank account might be closed can help you avoid an unpleasant financial situation.

A financial advisor can guide you through different banking options for your financial plan.

Why would a bank close your account?

Banks may choose to close accounts for a variety of reasons, although some may be more common than others. Here are six common situations in which a bank could close your account:

• Inactivity. You can open a new bank account with the intention of transferring funds from your current bank. Or maybe you just opened a new checking or savings account to take advantage of an introductory bonus. If you do not make your initial deposit by a certain date or there is no account activity within a specified period of time, the bank may close your account.

• Negative balance. When a bank account has a negative balance, it means there are no funds available to spend. You will need to make a deposit to bring your account balance back to positive. Banks can close your account if you have a negative balance and show no sign of making a deposit to rectify it.

• Excessive overdrafts. Overdrafts occur when debit transactions exceed your available balance, leaving you with a negative balance. Most banks charge overdraft fees when that happens, which could put your account further in the red. If overdraft fees accumulate, the bank may close your account to prevent you from completing new transactions.

• bounced checks A bounced check means you don’t have enough money in your account to cover the amount. Banks may close accounts that have a history of issuing bad checks or accepting bad checks for deposit and drafts against the funds.

• Fraud. Banks can sometimes close an account if they suspect fraud. For example, the bank might freeze your account if it thinks someone is trying to use your information to make unauthorized purchases or withdrawals. Banks may also close accounts if they believe the account owner is engaging in fraudulent or criminal activity, such as money laundering.

• Policy Violations. Your bank account could be closed if your bank believes you have violated one or more of their policies. For example, if the bank has an established policy on daily ATM withdrawal limits and it finds that you are repeatedly trying to circumvent those limits, it may close your account.

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Can a bank legally close your account without your permission?

Banks and credit unions can close accounts without the permission of the account owner. Depending on where you live, state law may require the bank or credit union to notify you in advance, but the bank does not have to ask if it is okay to close your account.

What happens if a bank closes your account? Do you lose the money in your account?

The good news is that if a bank closes your account, they are obligated to return the money in the account to you minus any account closing fees or charges that may apply. Let’s say you deposit $500 into a new checking account, but six months later, you haven’t used it. The bank might close your account for inactivity and charge a $30 fee, then return the remaining $470 to you.

Payment usually arrives in the form of a check mailed to the address you have on file. Now, what if the bank closes your account with a negative balance?

In that case, you would have to make a deposit to bring the balance back to zero. Otherwise, you will owe money to the bank and your account may be reported to ChexSystems. ChexSystems is a consumer reporting agency that collects information related to bank account closures. Having a negative mark on your ChexSystems report can make it difficult to open new accounts at a different bank.

Can a closed bank account be reopened?

Whether you can reopen a closed bank account may depend on the circumstances. If you closed the account yourself, reopening it can be as simple as asking your bank to activate it again.

If the bank closed your account, you must first understand the reason for the closure. For example, if the bank closed your account on suspicion of fraud, but you can prove that no fraud occurred, then you may be willing to reactivate your account.

On the other hand, if the bank closed your account due to repeated overdrafts or bounced checks, you may not be able to get it back. You may simply be too risky for the bank based on your previous account history.

What to do if your bank account is closed

If your bank account is closed without notice, it’s important to know what to do next. You may be able to recover the account. At the very least, it’s helpful to understand what happened so you can prevent a repeat of the situation.

Here are five things you can do if your bank account is closed:

• Contact the bank. The first thing you’ll want to do is contact the bank to ask for an explanation behind the closing. The reason will help you decide what to do next to correct the situation.

• Weigh your options. Once you know why your bank account was closed, you can find out how to fix it. For example, if the reason is a negative balance, you can make a deposit to pay off what is owed. Or if the bank closed your account due to inactivity, you can request that your funds be returned to you so that you can deposit them in a different account.

• Request account reopening. If you want to continue using the same bank, you can request that your account be reopened. Whether it makes sense to do so may depend on the reasons for closing and how satisfied you are with the bank overall.

• Check your ChexSystems report. When a bank account is closed for a negative reason, that may show up on your ChexSystems report. You can request a free copy of your report through the ChexSystems website to see what the bank reports. That can help you assess the likelihood of being denied a bank account elsewhere.

• Open a new bank account. If you decide not to reopen a closed account or the bank is unwilling to do so, you may need to open a new account. Please note that if your account was closed due to excessive overdrafts, bad checks or fraud, this may limit your options. You may want to explore second chance bank accounts, which are designed for people with a negative banking history.

Bottom line

Why would a bank close your account? The simple answer is that it all depends on the details of the situation. Knowing what to do next once a bank account is closed can help you minimize disruptions to your financial life.

Checking Account Tips

• Consider talking to your financial advisor about which bank accounts might be best for you, based on your money goals. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• When comparing checking accounts or savings accounts, it’s important to consider how well they fit your needs. Traditional checking accounts may offer access to bank branches, but you may enjoy better perks or benefits with a checking account from an online bank. Reviewing the best checking accounts and the best savings accounts can help you find the account options that are right for you.

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