What Happens to a Direct Deposit to a Closed Account?

When a direct deposit doesn’t appear in the intended account, it’s often because the payment was sent to a closed bank account. While this can be concerning, the funds are usually not lost. They follow a process to be returned to their origin. This article explains what happens to a direct deposit sent to a closed account and outlines steps for both the recipient and the sender to resolve the issue.

How Direct Deposits Are Handled by Banks

Direct deposits operate through the Automated Clearing House (ACH) network, an electronic funds transfer system. When a direct deposit is initiated, the originating bank sends the payment details to the ACH network, which then routes the transaction to the recipient’s bank. If the receiving bank identifies the account as closed, it will reject the transaction. This rejection is communicated back through the ACH network to the originating bank, often identified by an ACH return code, such as “R02 Account Closed”.

The rejection process ensures funds do not remain in an inaccessible account. The money is returned to the sender’s bank. This automated return usually occurs within two business days, though it can take up to ten business days for funds to be credited back to the originating account. The funds are simply in transit back to the original source.

While the most common outcome is the direct return of funds to the sender, in some instances, a receiving bank might temporarily hold funds or issue a paper check if the account was recently closed. The banking system’s goal is to ensure funds are accounted for and returned to the initiator.

Recipient’s Role in Resolution

If a direct deposit does not arrive as expected, the recipient should promptly take action. The first step is contacting the sender, such as an employer, government agency, or benefits provider. This communication is important because the sender will be notified when the deposit is rejected and returned to their account.

During this communication, the recipient should be prepared to provide updated and accurate bank account information. This includes the new bank’s routing number and the correct account number to ensure future payments are routed properly. Reviewing recent pay stubs or benefit statements can help confirm original direct deposit details. It is also beneficial to confirm with the new bank that the account is fully set up and ready to receive direct deposits.

Sender’s Role in Resolution

When a direct deposit returns due to a closed account, the sender’s bank notifies them of the failed transaction. This notification includes the ACH return code, such as R02, indicating the reason for the rejection. The sender should then verify that the returned funds have been credited back to their originating account.

Once funds are confirmed as returned, the sender must promptly contact the recipient to obtain updated banking information. It is important to request the new routing and account numbers to ensure the next payment attempt is successful. After receiving corrected details, the sender can re-issue the payment via a new direct deposit or, if necessary, a paper check. Senders should also update their internal records to prevent similar issues with future payments and maintain accurate financial information for all recipients.