Account management falls under personal finance but sudden closure is also possible and makes a person bewildered and apprehensive. Knowing what may be the likely reasons for closure of such accounts is good and to go ahead with the same in due course.
Likely reasons bank accounts close
- Inactive Accounts
Accounts, which have stayed long in inactive status, get closed by banks. If there has not been a debit or check transaction posted to the account for three or more years, the bank may deem the account abandoned and sell it to the state unclaimed property program. To prevent this, periodic spending, such as paying a bill or buying something from time to time, is recommended. Banks will typically try to reach the account owner before they close, but that’s on a state-by-state basis. For account activity problems, the best thing to do is to call the bank.
- Excessive overdrafts or bounced checks
Bounced checks or bouncing check history that is frequent can warn a bank that an account owner could be misusing their funds. Not only do these tendencies cost in the way of fees, but they also damage the account owner’s image. To avoid getting in trouble with potential account closing, it’s advisable to monitor account balances from time to time and set a budget so as to spend effectively.
- Negative account balances
A negative recurring balance means one is spending more than his/her budget. Banks will freeze such an account to prevent further loss. An overdraft account is forced to make deposits in adequate amounts well ahead of time to maintain a positive balance. Recurring negative balances might mean one must alter the expenditure pattern or seek advice from a financial planner.
- Suspicious or illegal activity
Financial institutions must by law watch for accounts having suspicious activity that may be used to launder money, commit fraud, or fund other criminal activity. Suspicious activity, such as large cash deposits, excessive foreign wire transfers, or high-risk party or individual transactions, may result in account investigation. When a financial institution cannot confirm the activity is genuine, it may opt to close the account in order to stay in compliance.
- Breach of conditions of terms
When an account is opened, he/she is bound to follow the terms and conditions of the bank. Running a personal account for business or business account for personal reasons without authorization will be in violation of such terms. Closure of the account is one of the likely consequences of such offenses. Reading and following the special rules that apply to each category of account is necessary.
- Criminal convictions
While uncommon, banks will close accounts when the account owner is convicted of money crimes, such as fraud or money laundering. The action is taken to help institutions manage risk and meet regulatory requirements. Offenders convicted of such a crime may find it beneficial to begin with financial institution relationships that offer second-chance banking services.
Steps to take if your account is closed
- Contact the bank immediately
If one learns that an account has been shut down, the first thing is to call the bank in hopes of finding out the particular reason the account was shut down. The reason can be an eye-opener and result in more action. Banks do not always have to provide information, especially if the closure is due to suspicious activity.
- Retrieve remaining funds
Banks will usually make an adjustment check for any balance due, if due, when closing the account. Have the bank’s most current contact details to hand in order to make the arrangements. In instances of late or non-receipt of funds, don’t forget to request the bank to pay differences.
- Review ChexSystems report
ChexSystems is a banking history reporting agency. Bad news, such as accounts closed because of overdrafts or fraud, can close down new accounts. A free report can be ordered to check for any issues and fix them. If errors are found, the best thing to do is dispute them with ChexSystems.
- Open a new account
After fixing the issues, attempt to open a new account. Some organizations have “second-chance” bank accounts for individuals with past banking issues. Comparison and choice of a bank according to one’s spending and requirements is highly essential.
Preventative measures
- Active account use
Regular transactions, even minor ones, notify the bank that the account is in use and reduce the risk of closure due to non-use.
- Check account balances
Utilization of facilities such as cell phone-based banking software can aid in checking the balance and overdrafts avoidance. Balance warnings when the account balance is running too low are also beneficial.
- Understand and comply with account conditions
Understandability of bank conditions of service ensures that utilization of the account is in the permitted limits to ensure avoidable transgression.
- Communicate with the bank
Where anticipated irregular transactions, advance warning to the bank will prevent ambiguity and even account freezing or shutting down.
