Keep Your Bank Account Active by Avoiding These Three Issues
Your checking account allows your cash to flow. If you find yourself with a closed bank account, it can cause a lot of financial stress and perhaps drive you into debt or late payments. A lot of people don’t know that the decision to keep your account open or not rests with the bank’s discretion. If you want to find out the three most common ways a bank account gets shut down and how to avoid it, read on.
Prolonged Negative Balance
If your account balance slips into the red, the banks will charge a per transaction overdraft fee. If it stays negative, they will assess an “extended overdraft fee.” These fees add up and can make a bad situation feel impossible. If the account doesn’t return to at least zero, the bank charges off the account. The bank will close your account and send the balance to a collection agency. Many banks will also enter you into a system called “ChexSystems”, which effectively blacklists you from getting an account at every bank in town that also uses ChexSystems. Find out what to do in this situation in this article.
Bank fees make up a large portion of the charged-off balance. Your available cash can suffer, as your income goes towards paying fees instead of paying bills. When this happens, giving up on your account can feel like your only option.
You need to make arrangements with your bank to bring any negative accounts to at least zero as quickly as possible.
Cashing (or Depositing) of Third-party Checks
For various reasons, people sometimes want to “use” your checking account. Perhaps your roommate owes you money, so they hand you their check as payment. Maybe someone you work with doesn’t own a bank account and wants you to act as the bank. Whatever the reason, banks dislike third-party checks.
A check written to anyone but the account holder is, by definition, a third-party check.
If Joe Smith deposits Bob Jones’ paycheck into Joe’s account, this qualifies as a third-party check. This does not change if Bob signs it “pay to the order of” or if he stands right next to you while you cash it at the teller window.
A third-party check creates risk for a bank because the bank doesn’t know (in our example) Bob Jones, and they can’t do anything to him if he cashes a bad check on Joe’s account and it bounces. If Joe forges Bob’s endorsement, however, Bob can come after the bank for processing a check into an account that he does not own.
You can avoid this problem easily.
Don’t cash checks for friends or accept checks made out to other people. Avoid this, especially when using ATM and mobile deposit features. Scammers often use these features to try and slip stolen or forged checks through the system. Banks do not tolerate this behavior regardless of how innocent your intent is. Insist friends open their own bank accounts. Friends ineligible for a bank account can find options in this article.
Returned Deposit Items
A return deposit item is any deposit that doesn’t clear your account. This includes bad checks, reversed direct deposits, or any other deposit that enters your account and then mysteriously disappears. Although online banking seems to reflect real-time, banks can still process checks on a lag time of several days. Transactions make their way through the Federal Reserve System, which takes time. When money shows up in your account the day you deposit it, the bank advanced you the money (except in the case of cash deposits). The bank plans on receiving money from the issuing bank. They will pull the money out of your account with no warning if they do not receive the money.
It seems unfair because someone else wrote you the bad check or made the mistake. However, banks see you as a risk, because they can’t trust that the items you deposit will clear. If you spend the money before the deposit reverses, this will raise a big red flag to the banks and possibly leave you with a negative account.
Often, check scammers use returned deposit items in their schemes. To prevent these scams, banks treat all returned deposit items with suspicion.
Asking a teller to put a hold on a check, will ensure checks clear the issuing bank before showing in your available balance. If you see an unfamiliar deposit, don’t assume that you can spend the money. Call the bank and try to get information regarding the deposit before considering the money spendable. If someone asks you to deposit a check and give them a portion back, (allowing you to keep the rest), don’t!
This is a common check cashing scheme that will leave you holding the bag, and potentially a closed account.
Reduce Your Risk of Closure
Banks constantly mitigate their risk. Tell the bank about any irregular account activity you may engage in. I highly suggest having checking accounts at two different banks. These three reasons alone, account for many of the bank-initiated closures I see. Maintaining two banks makes it easy to access your money and adjust your direct deposits, should the need arise.
Don’t Let an Account Charge-off and Do This Instead
You can prevent an account closure associated with a returned deposit item or an overdraft by doing the following:
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Negotiate with the branch manager about paying your portion of the overage and ask them to waive the fees.
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Open a bank account at a competing bank, BEFORE you find yourself listed on ChexSystems.
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Do not deposit money into the negative account, until the bank agrees to waive some (or all) of the fees. This means changing your direct deposit account and depositing checks elsewhere.
If a scam caused a negative balance, ask for the bank’s help in prosecuting the scammer. Help them view you as the victim, not the risk.
How to Open a Bank Account if You Have a Charged-off Account
If a bank account doesn’t allow check or electronic check transactions and only offers a debit card or online bill pay function, it likely doesn’t use ChexSystems. You can still engage in most banking activities with these accounts, e.g. receiving a direct deposit, paying bills, etc.
You can do an Internet search for “Bank accounts no ChexSystems” to find an account that works for you.
Call ChexSystems and the bank’s debt collector to see what you owe. Negotiate a settlement to clear the balance. Often, a debt collector will accept less than the full amount. Request that ChexSystems remove your record from their system. This doesn’t always happen. However, asking can’t hurt. Either way, time will heal the closure allowing you to open accounts sometime in the future.
Bottom Line
Having your checking account shut down by a bank makes you feel like the bad guy and can completely disrupt your financial life. If you avoid a few key behaviors and diversify your banking accounts, you can avoid or at least navigate a bank-initiated closure with minimal damage to your budget or finances.
