Maintaining a separate savings account at an online bank can act as an emergency buffer if your checking account is closed.
Having your bank unexpectedly close your account could result in late payments for bills that are linked to your account and could potentially make it more difficult to get a new account somewhere else.
MyBankTracker looks at why banks close customer accounts and what to do if it happens to you.
Establishing a good relationship with your bank is important but if you’re not careful, you could cause it to sour.
Repeatedly bouncing checks, letting your account lie dormant for an extended period of time or engaging in activities that are deemed suspicious are all reasons that your bank could decide to break up with you.
An account closure is inconvenient to say the least and it has the potential to impact your ability to get a new account with a different bank.
If you’ve gotten a Dear John letter from your bank, taking steps to minimize the damage can make it easier to move your money to another financial institution.
1. Understand Why the Account Was Closed
Typically, your bank should send out a written notice that your account is going to be closed but they may or may not spell out the exact reasons for doing so.
If the bank is being vague on the details, you need to follow up to get a clear answer on why they’ve decided to close your account and whether there’s anything you can do to head it off.
For example, if your account was closed because the bank couldn’t verify your tax information, updating your records may be enough to have the closure reversed.
Keep in mind, however, that banks are under no obligation to disclose the reason for closing an account so if yours is being tight-lipped, it may not be possible to correct the situation.
Tip: The bank will issue you a check for the balance in your account so you’ll need to make sure they have your correct name and address on file.
2. Stop Your Direct Deposits or Automatic Bill Payments
If your paycheck is automatically deposited into your now-closed account, you’ll need to let your employer know as soon as possible.
Waiting to notify payroll about the chance can significantly delay how long it takes to get paid since the bank will have to send the money back, which can take anywhere from five to 10 business days.
Once your employer is notified that the deposit was rejected, they’ll have to issue a paper check, which can add another week or two on to your wait time.
You also want to make sure your automatic bill payments are suspended and you make other arrangements pay to until you can establish a new bank account.
If you don’t, then you’re looking at getting hit with late fees or returned payment fees, which only adds to your financial headaches.
3. Check for Outstanding O
In situations where your account was closed because it showed a negative balance, you need to pay up to avoid being shut out by other banks later on.
If an overdraft goes unpaid long enough, the bank can eventually hand your account over to a collection agency.
At that point, the negative account will show up on your credit report which can seriously drag down your score.
If you simply ignore the overdraft, there are a couple of things that can happen.
One, the collection agency will continue piling interest, fees and penalties on top of the original balance.
In no time at all, a few hundred dollars can turn into a few thousand if you let the debt go.
The other thing you need to worry about is getting sued by the debt collector.
If they’re successful in proving that you owe the money, that opens the door to wage garnishment or seizure of any other bank accounts you may have elsewhere.
Tip: Some banks may be willing to allow you to set up a payment plan or negotiate a settlement when you owe a substantial amount in overdraft.
4. Get a Copy of Your ChexSystems Report
ChexSystems is the company that banks report negative account information to and having a black mark on your record can seriously hurt your chances of opening a new account.
Negative information stays on your file for five years unless the bank updates it or requests to have it removed.
Getting a copy of your ChexSystems report won’t cost you anything and it’s a good way to see what your bank and previous financial institutions you’ve done business with are saying about you.
If you see something that’s inaccurate or incorrect, you have the right initiate a dispute to have the matter reinvestigated.
5. Evaluate Your Options for a New Account
If your account hasn’t been reported to ChexSystems, you may not have much trouble getting a new one with another bank.
On the other hand, if it has, your options are likely to be more limited.
Not only that, but they generally charge fewer fees and pay higher rates on interest-bearing accounts than what you’d get at a traditional bank, which is an additional plus.
Here are the top online banks that have highest savings accounts rates and free interest checking accounts:
If you’re not having any luck with an online bank credit union or smaller community bank, a second chance checking account may be the answer.
Second chance accounts are offered by a number of banks and they’re designed for people who have made mistakes in the past and need a fresh start.
These accounts tend to carry higher fees but in most cases, you can convert them to a regular checking account after a certain period of time.
Rebecca is a writer for MyBankTracker.com. She is an expert in consumer banking products, saving and money psychology. She has contributed to numerous online outlets, including U.S. News & World Report, and more.