It's easy to think that all the power is in your hands when it comes to your bank accounts. You choose which bank you want to work with, what type of account you need, how much you keep there, and when you take it out.
Banks are eager to hold onto your money, so that's usually how it works. But there are a few situations where your bank may decide it no longer wants to do business with you. Below, we'll look at three of them and what you can do if your bank closes your account.
Three reasons your bank might close your account
Here are three common reasons your bank might close your accounts without your permission.
Inactivity
One of the most common reasons banks close accounts is because you're not using them. If you haven't deposited or withdrawn money from the account in months or years, your bank may decide to shut it down so it doesn't have to maintain it anymore. Alternatively, they may charge you a fee for inactivity.
Each bank sets its own rules for determining when an account becomes inactive. If you have any questions about this, you can always reach out to your bank to learn more.
Excessive overdrafts
Overdrafts -- withdrawing more money than you have in your bank account -- can result in fees if you have overdraft protection enabled. Doing this once in a while may not raise any red flags with your bank, but if you do so often or you aren't able to get your account back into the positive, your bank may decide to cut its losses and close your account.
This isn't something you usually have to worry about if you don't use overdraft protection, though. In this case, the bank will decline any transactions you attempt to make that exceed your current account balance. However, if the account charges monthly fees you fail to pay, you could find yourself in a similar situation.
Fraud
If your bank catches wind of the fact that you're using your account to scam others out of their hard-earned cash, they'll almost certainly close your account. And that may not be the worst of your problems. This one is pretty straightforward. Don't try to cheat anyone and you won't have to worry about this.
What to do if your bank closes your account
The way you handle a closed bank account will depend in part on why the bank closed it. If it was a simple matter of inactivity, you may be able to contact the bank to negotiate or to open a new account with them. Shopping around for a new account at a different bank is also an option.
Things are more complicated if the bank closed your account due to unpaid maintenance and overdraft fees or because of allegations of fraud. Your bank will probably be reluctant to work with you again, and other institutions might be as well.
Banks report the reason for account closures to an agency known as ChexSystems. This enables other institutions to learn more about your banking history before deciding whether to give you an account.
In the worst-case scenario, traditional banks and credit unions may not want to work with you based on your past banking behavior. If this happens, you may have no choice but to seek out a second-chance checking account.
These are accounts specifically tailored to people who have had bank accounts closed on them in the past. The idea is similar to a secured credit card for those with poor credit histories. They typically carry more restrictions than a standard checking account, including monthly fees you cannot waive. But if you avoid fraudulent activity or negative balances, the bank may invite you to upgrade to one of its regular bank accounts in six months to a year.
Hopefully, you never find yourself in a situation where you need one of these, but it doesn't hurt to understand these rules anyway. And as always, if you have any questions about your bank account's rules, don't be afraid to reach out to the institution and ask. A quick call or email could save you a lot of confusion.
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