Bank accounts

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 overdrafts

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.

Credit unions or online banks are one alternative to consider, since they’re member-owned and tend to be more understanding when it comes to past banking mistakes. 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.

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  • Ronette Hickey Barela

    My bank called me at 3pm this past Thursday. No letter has been sent. We are heading into a 3 day weekend and my retirement check was supposed to direct deposit on the 1st plus deductions. Can they just call you to cancel bank account. What is the legal steps to do this.

    • Simon Zhen

      Yes, the bank may close your account without prior notice. Did it give a reason for you why your account was closed?

      The best thing to do may be to visit a branch and confirm that your account was closed. And, find out why it was closed to see if you can do something about it.

      Finally, if you feel that you’ve been treated wrongly, you can file complaint with the Consumer Financial Protection Bureau:

  • saskia


    my bank has recently frozen my account while they “resolve a matter” and will contact me in writing.

    what are the next steps and if they do close my account will they give me my balance via cheque?

    • You should figure out why your account is frozen. They’re unlikely to close the account until the issue is resolved. Otherwise, yes, your balance should be returned to you upon the closure of your account.

  • closedacct

    My friend had a bank acct and over draft it by $50. was out of work so it was closed. He is now working and when his company tried to direct deposit his first check it was sent back because the acct was closed. So in two weeks its pay day and again the company tried direct deposit this time to a opened acct, the very same one that was closed, so he called the bank and they said yes that they had re opened the acct. When he goes the that bank, the very same day he is told the acct was closed again. They closed the acct., denied the first direct deposit, then reopened it so they could get their overdraft payment then closes the acct again and tells him they sent him a check to the last know address on the acct. Can they legally do this. the last address on the acct was a very bad place for it to go not on good terms what so ever

    • Sound like your friend would just be better off to open a new account and have the direct deposit go into that account.

      If you feel that they are treating your friend wrongly, you can submit a case with the Consumer Financial Protection Bureau, who will investigate the case.

  • Kephyr Cole

    if i had a negative balance and my bank closed my account…what do i do next to not have a bad credit?

    • Confirm with the bank that the account was closed. You can ask if this account was reported to ChexSystems, which records any negative behavior regarding your bank accounts.

      You can also check your ChexSystems report to see if there are negative remarks on your record. Then, you can take steps to resolve it (such as correcting the negative balance). You are eligible to one free ChexSystems report per year.

  • Andrea

    Bank recently called me and threatened to close my business account if I don’t comply providing information such as CPA and annual revenue. Why is that?

    • Banks reserve the right to close your account(s) for any reason. Your bank may be asking for more information about your business because it has to report certain accounts to the IRS if it suspects something about the account(s). The IRS may investigate for illegal activity and illegitimate business practices.

  • Ryan Bahl

    My bank account was closed due of check returns, they gave me the money and i opened up another bank account in a different bank. After about three weeks i got a notice from the other bank that they are shutting the account without any explanation. There were not any check returns this time with new bank, but they just sent me this letter. Any recommendation what to do in this situation? If there are any other financial institutions that i can open an account with?

  • Suman Kumar

    axis bank closed my SB account with out any information before submit my PF settlement i call up to customer care about my account they replyed it is active you can do transactions mean while got mess that my PF final settlement done through NEFT but bankers told me that account got closed that happend without any notice any one suggest me to solve my issue.

  • Bria Elizabeth Michelle

    Ok so I just opened my bank back up and it won’t let me make a purchased online , yes I put money in my account