What Happens if Money Goes into a Closed Bank Account?

When a direct deposit is sent to a closed bank account, it can be re-routed to another open bank account or returned to the sender. Some banks may hold the money in an unpostables account for seven business days before returning the money.

Reasons Why A Bank Account is Closed

There are a number of reasons why a bank may close an account without directly notifying the customer. If your bank account was closed, the majority of the time; it’s because of the following reasons. However, banks can make mistakes and the wrong accounts can be closed in error. When this happens, the banks will be quick to fix the issue for you.

When money is sent to a closed bank account, the money can be:

  • Re-routed to another open bank account
  • Sent by cheque to the customer
  • Returned to the sender
  • Kept in an unpostables account until you contact them (usually 7 days)

Bank Accounts Closed for 3 Months of Being Overdrawn

If your bank account is overdrawn for more than 3 months; your bank may close your account. An overdrawn account is difficult to collect, so your bank will not want any more risk. However, a closed bank account can be re-opened when you make the payments to cover the overdrawn position.

Issues arise when a closed bank account receives direct deposits or makes ACH payments. In these situations, neither of these things will happen. You will need to get in touch with your bank to re-open your account.

Bank Accounts Closed After Fraud or Suspicious Activity

A bank will close your account if they detect fraudulent or abnormal activity. For example, if you are depositing multiple altered cheques, re-depositing old cheques or transferring large amounts of money – the bank will close your bank account. You will need to go to the bank and present yourself to re-open your account and explain the transactions on the account.

There are bank customers who will open an account for the sole purpose of money schemes or fraudulent activity, so please be careful. If a bank closes your account for fraud, you will not be allowed to re-open your account with the same bank. The bank does not want to be held liable for any risk associated with your activities if you are caught in these situations.

Bank Account Closed for Derogatory Reasons

A bank account closed for derogatory reasons is because the account was defaulted, in a negative balance position or overdrawn. Your bank will send the account into collections to try and collect the funds. Your profile at the bank will have a derogatory mark, which will indicate the status the bank account is in. A derogatory bank account will show up on your credit report, indicating the amount of money you owe on the account. It can hurt your credit rating and prevent you from opening other bank accounts and credit products in the future.

Can Banks Charge Inactivity or Dormant Account Fees?

Banks are allowed to charge dormant or inactivity account fees. These fees will vary from one bank to another, but most fees are annual fees. For example, Canadian banks will charge $10-$20 for the first year and second year, and then increase the fee for the third, fourth and fifth year. A dormant account fee is charged to encourage customers to use their bank accounts.

An unused bank account has no deposits being made, which can hinder the bank’s performance. The bank wants it’s customers to deposit funds into their accounts. To avoid paying dormant account fees, you can always make sure to deposit or transfer money in and out of your account at least once a year.

If you leave your account dormant for five years, not only will you be charged this fee – but when you go to close your account; you may be hit with all the fees at once. Just remember that when money goes into a closed bank account, you will need to contact the bank or the originator.

Can a Closed Bank Account be Reopened?

A closed bank account can be re-opened after it has gone dormant or inactive. If the bank closed the account because it was overdrawn, you will need to re-assure the bank before re-opening. If your account was closed because of fraud, you may not be able to re-open your account.

Can You Get Statements from a Closed Bank Account?

You can get statements from a closed bank account for up to seven years. In Canada, most banks will hold on to bank statements for a period of 7 years. You can request statements, copies of deposited cheques and written cheques for this period. However, banks can charge you a search fee.

For example, personal account statements can be billed at $5/month and cheque images can be billed at $5/image. If you have a good relationship with your bank, you can request to be billed on an hourly basis – which is usually cheaper! You should also be aware of what someone can do with your bank statement!

Can You Have the Same Bank Account Number as Someone Else?

You can have the same bank account number as someone if you are with different banks. If you are with the same bank, you cannot have the same bank account number. This is because every bank has a different institution number and transit number.

However, it is very likely for you to have the same account number as someone else who closed their account with your bank (usually after 7 years). This is known as recycling bank account numbers. So, yes bank account numbers are reused by most banks in Canada and the U.S.

So, when money goes into a closed bank account for the old customer, it will either be returned or re-routed.

Are Bank Account Numbers Confidential?

Bank account numbers are not confidential. When you write a cheque to someone, the cheque will have your account number at the bottom. For this reason, your bank account number is not confidential. However, it is advised you only send your bank account number to someone you trust, who is sending you money.

What Can You Do with the Last 4 Digits of a Bank Account?

You cannot do anything with the last 4 digits of a bank account or credit card account number. The last 4 digits are solely for identification purposes on a receipt. No one can access your account, identity or money with the last four digits of your bank account number.

However, it is important to keep your bank account number as protected as possible. With payment methods such as EFTs and ACHs, it is possible to direct debit accounts by knowing someone’s bank account number.

In the U.S., most banks offer their customers with a service known as Debit Block. This service will block all debits that hit an account, preventing any funds from leaving your account. In Canada, the technology has not been made available at most banks.