Business Banking

Can I reopen a closed bank account?

Wondering if you can reopened a closed bank account? Here's what you need to know.

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In a word, yes, a closed bank account can be reopened. It, however, largely depends on why the bank closed the account in the first place as well as the bank’s policies.

A bank can close an account for any number of reasons, including dormancy and potentially fraudulent activity. Knowing why the bank closed the account will give you an idea of whether or not it can be reinstated.

Keep in mind that banks reserve the right to close your account. Your bank may notify you of the closure, but they’re not required to do so. However, all banks are required to return any money you had in the account, minus unpaid bank fees and charges. Oftentimes the returned money comes in the form of a check.

Why did my bank close my account?

As mentioned, banks reserve the right to open and close accounts at will. If at any point your bank deems you a high-risk account holder, it will close your account. Generally, there are three reasons why a bank may decide to close your account:

  • Confirmed or suspected fraudulent activity
  • Unpaid negative balance

Closure due to fraudulent activity

Your bank may close your savings or checking account if it shows clear signs of fraudulent activity. The bank may also freeze (or even close) an account out of suspicion that it is associated with fraudulent activity.

The types of activities that qualify as fraudulent vary between banks. However, the most common ones are:

  • If you open an account in a different city or state from the one you reported to the bank as your residential/work city or state.
  • Opening multiple accounts under the same name.
  • Unusual increases in direct deposit amounts.
  • Unusually high direct deposits in round numbers.
  • Large and frequent transactions when you have no employment record.
  • If your account receives large amounts of money from overseas accounts.
  • Receiving a direct deposit of just under $10,000. You’re usually required to report any direct deposits that amount to $10,000 or more to the Internal Revenue Service (IRS). Banks may interpret a direct deposit amount that just falls short as a deliberate attempt to avoid reporting the deposit, which suggests fraud.

Closure due to an unpaid negative balance

Excessive overdrafts are a common causes of unpaid negative bank balances. The amount of time that you can leave your account negative varies from bank to bank, but most will close the account within 30 days to three months. This is a big risk when banking with an institution that charges hefty overdraft fees – the fees alone can cause a negative balance and put your account at risk of closure.

It’s worth mentioning that there are accounts that don’t charge overdraft fees at all. These accounts are ideal if your personal or business cash flow has not picked up yet and you’re worried that your account may have a negative balance at any point.

What to do if your bank account is closed

Since banks are not required to inform you of a pending account termination, it’s possible that you may only find out that your account was closed when your checks start to bounce, debit card declines, and online access to your account is revoked.

Whatever the case, the first step to take is to figure out why your account was closed. You can know that by contacting the bank directly through a call. Things like a history of unpaid overdrafts, outstanding debts with the bank, a dormant account and fraudulent activity may all be contributors.

Next, check your ChexSystems report to find out which bank(s) reported your account(s) and why. ChexSystems is a company that collects and maintains information on your bank accounts. It’s similar to credit bureaus, only that its scope starts and ends with bank accounts. Plus, it only collects negative information. Banks, credit unions and other financial institutions use ChexSystems to determine whether a current or potential account holder has a history of misusing a bank account.

Things like failure to pay fees, bounced checks, unpaid liens, and non-sufficient funds go into your ChexSystems and stay there for up to five years. If your bank closes your account and you’re not sure why, you can pull your ChexSystems report and see whether it contains the answers you’re looking for.

You may also want to know that past mistakes that taint your ChexSystems report may prompt banks and financial institutions to reject your applications to open a new savings or checking account. As CNN Money reports, up to 15% of people who apply for new bank accounts are denied because of their banking history. Therefore, it’s important to avoid any mistakes when handling your bank accounts. You can get a free copy of your ChexSystems report once every twelve months to see whether there are any banks reporting your activities.

Can I reopen a closed bank account?

You may be able to reopen a closed bank account, but it depends on why your bank closed the account in the first place. Generally, you’ll find it harder to reopen an account that was closed due to financial risk (like a big negative balance) and fraudulent activity. On the other hand, a dormant account or one that carries a negligible negative balance won’t be as challenging to reopen. Below is a guide on how to handle accounts closed for various reasons.

How to reopen a closed bank account

The steps to take to reopen a closed bank account depend on why it was closed. Nonetheless, you should start immediately when you discover that the account was closed. That’s because banks are required by law to charge off the debt within 60 days.

How to reopen a bank account that was closed due to lack of activity

Oftentimes you can reopen a dormant account by making an electronic direct deposit within a specified amount of time. Some banks will require that you make a request to reopen the account. That request should be accompanied by a direct deposit. Other banks will reopen the account when you make a withdrawal and not necessarily a deposit.

The bottom line is that more often than not a transaction is enough to reopen a dormant account. However, check with your bank’s terms and conditions because there may be minimum deposit requirements for reopening a dormant account.

How to reopen a bank account that was closed due to fraudulent activity

Your bank will file a Suspicious Activity Report with the Department of Treasury if it detects suspicious or fraudulent activity with your account. Once that happens, you can’t reopen the account. In fact, other banks won’t allow you to open a new account with them.

The good news is that your bank will generally notify you before reporting your account for fraudulent activity. You may be able to avoid the closure altogether by proving that all deposits are legitimate and that no transactions are associated with fraud. Nonetheless, the bank still reserves the right to close your account if they deem that you are a high-risk account holder.

How to reopen a bank account that was closed due to an unpaid negative balance

Your ability to reopen a bank account that was closed because of a prolonged negative balance fully rests with the bank’s policy. That said, oftentimes the bank will allow you to reopen the account by paying the negative balance along with all overdraft fees and transaction cost of every item that bounced.

If the bank closed your account because of a recurring pattern or high frequency of overdrafts and a negative balance, then most likely you won’t be allowed to reopen it. But you’ll still need to pay the balance and its associated fees and charges. Otherwise, the bank may report your account to ChexSystems and credit bureaus. This will not only lower your credit score, but it will also make it hard for you to open a bank account with any other institution in future.

Consider an alternative checking account

With traditional banks tightening the noose on people who have a checkered history with bank accounts, new companies are coming up with exciting alternative accounts. These accounts feature low to no maintenance fees, no overdraft charges, and no NSF fees. Scrapping costs essentially means that your account is unlikely to have a negative balance.

The Nearside Checking Account is one such account. Geared towards small business owners, freelancers and independent contractors, the Nearside account comes with no sign-up costs, no monthly fees, no minimum requirements, no overdraft fees, no NSF fees, and 2.2% unlimited cash backs. An added advantage is that you get a debit card that you can use for all purchases. There are no debit card replacement fees either.

With such offers, you can rest assured that your account will never be problematic to prompt a closure – not for a negative balance anyway.

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