3 Surprising Reasons Your Bank Would Close Your Checking Account

Yes -- a bank can close your checking account without telling you in advance. Although it usually won't close an account without a specific reason, your bank has the power to do so at any time.

Of course, banks want depositors and will keep your account open for as long as you actively use it and stay in good standing. But if you find yourself in any of the following three situations, you may one day wake up with a closed checking account at your bank.

1. Account inactivity

Perhaps the most common (and harmless) reason for closing your account is simply because you're not using it.

Many banks will close your account if your balance remains at $0 for a certain period of time. Others will consider your account inactive if you don't engage in certain activities, like depositing money, for a long period, even if you have some money in your account. Some banks will even charge you a fee for an inactive or dormant account.

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Financial institutions define "inactive" differently, so look at your deposit agreement carefully. Find out how your bank defines inactive and what the consequences are for leaving your account dormant for a period, so you can avoid this.

2. Too many overdrafts

Overdraft is when you spend money in your checking account that you don't actually have. If you don't have enough money to cover a transaction, your bank will normally decline it. But if you have overdraft protection enabled, your bank will cover the difference for you for a fee.

Overdraft protection can be expensive, with an average fee of about $35. Most banks won't mind letting you overdraft every once in a while, especially since you're paying for the service. But if you overdraft frequently or don't pay your bank the fee you owe, you could wind up with a closed account.

3. Fraudulent or criminal activity

Banks don't want negative press. They don't want to be the center of some big money laundering scheme, nor do they want to be the central financial institution of criminal activity. If a bank suspects you of illicit activities, it might close your account without notifying you.

In similar fashion, a bank might close your account if it thinks you're the victim of fraud. This involuntary closure would protect your identity and funds and wouldn't necessarily prevent you from opening a new account at the same institution. You would most likely be notified of this and the bank will likely include you in its investigation of the fraud.

What to do if a bank closes your checking account without telling you

First, contact your bank and try to understand why it closed your account. If it was due to inactivity, you might explain why you weren't using it -- you were on vacation, in the hospital, or similarly occupied -- and see if they can reverse the closure. You could also look at the best checking accounts and open a new one if you want to try something different.

You might have a harder time if the account was closed due to fraud or a negative balance. In this case, your bank will likely report the involuntary closure to a reporting agency called ChexSystems. Since many banks consider your ChexSystems report when you apply for a new account, this could make it harder for you to get another checking account. That said, a growing number of banks don't use ChexSystems reports, offering you a second chance.

Truth be told, no one wants to rely on their checking account only to find it closed unexpectedly. To avoid this fate, read over your deposit agreement and understand what could lead your bank to close your account. Likewise, sign up for a free checking account to avoid a situation in which fees cause a negative balance, leading to a closure.