What Happens If You Close a Bank Account?

Closing a bank account involves important steps for a smooth transition and to prevent future financial complications. Individuals might consider closing an account for various reasons, such as moving to a different financial institution, consolidating multiple accounts, or no longer needing a particular account.

Understanding the proper procedure for account closure helps avoid unexpected fees, missed payments, or issues with financial records.

Preparing to Close Your Account

Before initiating the formal closure process, preparatory actions are necessary. Transfer all funds out of the account. This can be done through electronic transfers, cashier’s check, or cash withdrawal, ensuring the balance is zero or near zero. Account for any pending transactions, such as checks that have not yet cleared. These usually take one to two business days.

Update all direct deposits. Identify all sources of incoming funds, such as paychecks, government benefits (like Social Security or VA benefits), or tax refunds. Contact each payer directly, whether it’s your employer’s human resources department, the relevant government agency, or other entities, to provide them with the details of your new bank account.

Similarly, all automatic payments and subscriptions linked to the account must be redirected. Carefully review your bank statements to identify all recurring debits for bills, loan payments, and subscription services, then contact each service provider to update your payment information with your new account details.

Retaining historical financial records is important for preparation. Before the account becomes inaccessible, download or request digital copies of all account statements and transaction histories. Many banks allow access to these records for a limited time after closure, but having your own copies ensures long-term access for tax purposes or personal record-keeping. Additionally, verify that all checks you have written have cleared and all electronic transactions have fully posted to avoid any issues during the closure process.

Steps to Close Your Account

You can formally close the account with your bank by visiting a local branch in person, calling customer service, or in some cases, submitting a request through their online banking portal. When contacting the bank, have your account number and a form of identification ready. The bank will need to verify your identity and confirm account ownership.

The bank will typically require a formal request for closure. This might involve signing a specific form, providing a written request, or giving verbal confirmation over the phone. Some banks may place the account in a “pending closure” status for a short period, such as 10 business days, allowing any final pending transactions to clear.

If a small balance remains in the account during closure, the bank will typically disburse it to you. This can be done by transferring it to another account, issuing a check, or providing cash.

Obtain written confirmation that the account has been officially closed. This confirmation, which can be an email or a formal letter, serves as proof that you are no longer responsible for the account and can be valuable for your records. This documentation helps prevent future disputes or unexpected charges.

What Happens After Account Closure

After your bank account is officially closed, you should expect to receive a final statement reflecting the zero balance and confirming the closure. While many standard checking and savings accounts do not incur fees for closure, some banks may charge an early account closure fee if the account was opened very recently, typically within 90 to 180 days. These fees usually range from $5 to $50 and are intended to recoup administrative costs.

Should a direct deposit or automatic payment attempt to process after the account is closed, the funds are usually returned to the sender. The bank may decline the transaction, or in some cases, hold onto the funds and notify the account holder, potentially even issuing a paper check. This return process typically takes about five to ten business days.

If an automatic payment related to a credit account, such as a loan or credit card, attempts to pull funds from a closed account and is rejected, it could lead to a missed payment and potentially impact your credit score.

Closing a bank account generally does not directly impact your credit score. Unlike credit accounts such as credit cards or loans, checking and savings account activity is not reported to major credit bureaus. However, an indirect negative impact could occur if the account was closed with a negative balance that was then sent to collections, as collection accounts can severely affect your credit score for up to seven years.

Re-opening a closed account with the same bank is often possible if you voluntarily closed it and were in good standing. However, it is typically not an option if the bank closed the account due to a breach of terms, suspicious activity, or excessive overdrafts.

Closing Different Types of Accounts

Closing certain types of bank accounts may involve unique considerations beyond the standard process for checking or savings accounts.

Joint Accounts

For joint accounts, banks often require the consent of all account holders to initiate closure. While some institutions may allow one account holder to close it, many require both parties to sign a form or be present, especially if the account has a balance. It is advisable to confirm the specific requirements with your bank beforehand.

Business Accounts

Closing a business account involves additional complexities due to its ties to business operations. Before closure, all outstanding obligations, such as overdrafts or loans linked to the account, must be settled. Businesses also need to ensure that all tied services, like merchant services or payroll, are transitioned to a new account, and any potential tax implications are addressed.

Certificates of Deposit (CDs)

For Certificates of Deposit (CDs), closing the account before its maturity date typically incurs an early withdrawal penalty. This penalty is usually calculated as a forfeiture of a portion of the interest earned, often ranging from one to six months’ worth of interest, depending on the CD’s term and the bank’s policy. In some cases, if the accrued interest is less than the penalty, a portion of the principal may be affected.