Banks are great places to store money because of their security, Federal Deposit Insurance Corp. (FDIC) insurance, and convenience. It’s easier to trust banks now than it was during economic panics when they didn’t have insurance, but banks can freeze people’s accounts. This isn’t something banks do often, but there are a few reasons someone may end up with a locked bank account.
What happens when a bank account is frozen?
If your bank account is frozen, you don’t have many choices. While you still own the money in your bank account, you can’t access it. You will need another source of funds to cover expenses while waiting for your locked account to get resolved. Deposits will still go into your account, but you cannot withdraw funds or transfer money.
6 reasons a bank may freeze your account
How does a locked bank account end up that way? Here are some of the reasons banks freeze accounts.
Suspicious activity
Banks monitor the financial activity of their account holders and can identify transactions that seem suspicious. If someone obtains your bank account information and tries to take out all of your money when you have never done that, it can prompt an account freeze. The bank may also freeze your account because of suspicious activity if you transfer a significant amount of funds to unknown accounts.
Criminal activity
Bank account freezes make it harder to engage in criminal activity. Many of these activities need money, and while bank account freezes alone won’t solve the problem, they make cash more difficult to access. Banks can freeze the accounts of clients associated with criminal activity such as money laundering.
Failure to comply with the bank’s policies
Banks have several terms and conditions each client agrees to when they create accounts. If those agreements are breached, the account holder can owe the bank a lot of money. A maxed-out credit limit, falling behind on banking fees, and having a negative balance can prompt some banks to lock accounts.
Unpaid debt
It’s common for people to have unpaid debt. Credit cards, mortgages, and automobiles can all result in unpaid debt. Making on-time payments for these financial obligations will keep you in good standing, but some people let unpaid debt linger without making any effort to repay it. Banks may decide to freeze a client’s bank account if that person lets unpaid debt stay that way.
Court order
If you fall behind on debt for several months or years, a debt collector or creditor can get a court order against you. This court order can result in a frozen bank account once it’s all said and done. Debt collectors and creditors need a court order to freeze your account. They can’t do it on their own. The government can also use this route to freeze bank accounts. A common reason a government agency will make this request is if the bank account holder has been evading federal taxes.
Mistakes
Bank accounts get frozen for several reasons, but it could also be a simple human error. Your bank account may get frozen by mistake, and all it may take is a quick call to a representative where you explain the situation and ask whether it was done in error.
What to do if a bank freezes your account
No one expects their bank account to get frozen, but it can happen for several reasons. If it happens to you, here are some of the actions you can take.
Don’t panic
Banks let you know if they have frozen your bank account. You will receive a notice from them that will contain details about their decision. Read through the notice carefully so you have the full context. A locked bank account can be stressful, but panicking doesn’t make it better. Focus on what you can do to get closer to a solution. The rest of this article will detail action items that can help you unfreeze your bank account.
Contact the bank
If your bank account got frozen by mistake, the bank could help. You can call or email your bank to get a quick response. It’s better to call the bank in this scenario because it can take a few hours to receive a response to your email. Let the representative know about your situation and ask for guidance. If you get on a call, it’s important to be courteous. A locked bank account is stressful, but if you take that stress out on the representative, it can prolong your path to a solution.
Report any fraud
Some bank account freezes happen because the financial institution wants to protect you from fraud. If fraud is the reason your bank account got frozen, report it to the appropriate authorities. You can call ChexSystems to protect your account from further fraudulent activity and reach out to the Federal Trade Commission if you are a victim of identity theft. Reviewing your credit report and financial activity can help you determine whether someone stole your identity.
Get in touch with the creditor
If your bank account got frozen because of debt, it’s important to reach out to the creditor who got the court order against you. Resolving debt and coming up with a new payment plan can help you unfreeze your account. Consumers have several choices to make amends with a creditor, such as restructuring debt or agreeing to a debt settlement plan. While this can be a frustrating solution to unfreezing your account, it’s important to be respectful during the call. The creditor has more leverage in these conversations and wants their money back. An unpleasant call can keep your bank account frozen longer.
How to prevent your bank account from being frozen
If your bank account has never been frozen, it’s best to keep it that way. Keeping up with financial obligations and checking your account for suspicious activity will help keep your account safe. Monitor your transactions so you can spot suspicious activity if it arises. Human error can still result in a bank account getting locked, and under this rare scenario, calling your bank should get it resolved quickly.
Protecting Your Money
A bank account is a valuable resource that simplifies your day-to-day finances. As long as you keep up with debt and monitor your financial activity, you should be safe from an account freeze. If you find yourself falling behind on debt, look for ways to catch up. Reducing your expenses, picking up a short-term side hustle, and renegotiating debt can help. Banks provide FDIC insurance, which gives you an extra layer of protection for your finances. Avoiding an account freeze will help you capitalize on the best resources banks have to offer.
FAQ
How do you know if your bank account is frozen?
Your bank will send you a notice if your account gets frozen. You will also be unable to withdraw or transfer money.
Why do banks freeze accounts?
Banks usually freeze accounts because the account holder fell behind on debt or because of suspicious activity. Sometimes, it’s human error.
Can a bank deny you access to your money?
Banks can prevent you from withdrawing or transferring money, but this only takes place in rare scenarios. Most creditors and debt collectors give borrowers over a year before attempting to freeze bank accounts through court orders.
