Can a Bank Keep Your Money?

Questions often arise about the security and accessibility of funds held in a bank. While it might seem a bank could arbitrarily restrict access to your money, this is not the case. Financial institutions operate within regulations and contractual agreements that define when funds can be held, frozen, or claimed. These situations are driven by legal mandates, regulatory compliance, or the terms of your account agreement.

Temporary Holds and Account Freezes

Banks frequently place temporary holds on funds for security, fraud prevention, and processing requirements. A common scenario involves holds placed on checks deposited into an account.

The Expedited Funds Availability Act governs how quickly banks must make deposited funds available. Cash deposits and electronic payments are available the next business day, but checks may be subject to longer holds. A bank might place a hold on a check due to a new account (opened less than 30 days ago), a large deposit exceeding $5,525, or if the account has been repeatedly overdrawn in the past six months. If a longer hold is placed, the bank must provide a notice explaining the reason and when the funds will become available. Funds from a check subject to an exception hold are available no later than the seventh business day after deposit.

Banks may also freeze accounts if they suspect fraudulent activity, such as unusual spending patterns, unauthorized transactions, or identity theft. These freezes prevent financial loss, and customers typically need to provide documentation or verify transactions to resolve them. Banks also conduct internal reviews for compliance issues, which can lead to a temporary account freeze. These freezes are initiated without prior notice to prevent the movement of illicit funds.

Legal and Governmental Actions

Banks are legally compelled to restrict access to or surrender customer funds under specific mandates from legal or governmental authorities. These actions override standard account access and result from unmet financial obligations or ongoing investigations. Such scenarios are initiated by third parties rather than the bank itself.

One such action is a bank account garnishment, which arises from a court order to satisfy a debt. This process begins after a creditor obtains a judgment against a debtor for unpaid debts, such as consumer loans, judgments, or child support. The creditor serves a “Garnishment Summons” to the bank, which then freezes a sufficient amount of money to cover the debt. The bank must freeze the funds and, after a specified period, remit them to the creditor.

Similarly, a bank levy is a legal seizure of property initiated by government agencies like the Internal Revenue Service (IRS) to collect unpaid taxes or other governmental debts. The IRS sends a notice to the bank holding the assets, instructing them to freeze the funds. After issuing a levy notice, the IRS provides a 21-day waiting period. After this period, the bank must transfer the funds to the agency to satisfy the outstanding debt.

In response to subpoenas or court orders related to legal investigations or disputes, a bank may also freeze funds or restrict account access. This can occur even if the account holder is not directly the target of the order but their funds are part of an investigation. Federal regulations, such as the Bank Secrecy Act and anti-money laundering laws, obligate banks to monitor for and report suspicious activity. If suspicious activity is detected, banks may freeze or close accounts and file a Suspicious Activity Report (SAR) with financial authorities, coordinating with law enforcement.

A distinct circumstance is escheatment, where funds in dormant or inactive accounts are turned over to the state government as “unclaimed property.” Each state has specific laws defining the dormancy period before funds are considered unclaimed. Before escheatment, banks are required to attempt to notify the account holder through mail at their last known address. If the owner cannot be located after the specified period of inactivity, the funds are remitted to the state treasury.

Bank Policies and Account Management

A bank’s ability to retain or reduce funds is governed by the contractual agreement between the institution and the customer, and routine account management practices. These terms are outlined when an account is opened.

Banks assess various fees and charges that can reduce an account balance. These include monthly maintenance fees, which may sometimes be waived, or overdraft fees. An overdraft fee, typically ranging from $25 to $40, occurs when a transaction exceeds the available balance. Non-sufficient funds (NSF) fees, similar to overdraft fees, are charged when a transaction is declined due to insufficient funds. Other fees can include ATM withdrawal fees, wire transfer fees, or dormant account fees if an account remains inactive but not yet escheated.

Financial institutions reserve a “right of set-off,” allowing them to use funds from one of a customer’s accounts to cover a debt owed to the same bank. For example, if a customer defaults on a loan or credit card with the bank, the institution may apply funds from their checking or savings account to satisfy the outstanding debt. This right is detailed in loan agreements and deposit account terms and conditions.

Banks also maintain the right to close an account under various circumstances. Reasons for account closure include repeated overdrafts, suspicious activity, violation of account agreement terms, or low usage. Banks generally provide notice of closure, but are not always required to do so, especially if there are concerns about illegal activity. Upon account closure, any remaining funds are typically returned to the customer, often via a check.

When an account falls into a negative balance due to overdrafts or returned items, the bank expects these funds to be repaid. The institution may recover the negative amount from subsequent deposits or from other accounts held by the customer at the same institution. This allows the bank to recover funds extended to cover transactions that exceeded the available balance.