Most financial institutions (banks, credit unions, etc.) allow consumers to make transactions whenever they please. When rules and regulations are violated, or there is a consistent lack of money in an account, they can also place restrictions on those activities.
Government organizations reserve the right to place these limitations on accounts. This condition is found in the terms and conditions a consumer agrees to follow when becoming a member of the institution.
Some court processes, such as probate, are authorized to place restrictions on a bank account.
If you’ve encountered this issue, the easiest way to solve the problem is to follow the instructions that will lift the restriction.
Can You Withdraw Money from a Restricted Account?
Restricted accounts can limit consumers from withdrawing deposited funds or how much can be taken. Some institutions disallow depositing money or writing checks until the restriction gets removed. These rules may apply even when the limitations are self-imposed.
Although consumers generally have a right to their money, that perspective has some natural limitations.
- You can’t get money from a teller when the bank is closed, but you could access some cash from the ATM for a small fee.
- If there isn’t money in a checking account, you’re not necessarily permitted to have an instant transfer from savings.
- Some institutions limit how many transfers or withdrawals are allowed each month, which can be as little as three transactions for some customers.
If you always want 100% access to your money, the best solution is to keep that cash available where you live or at a place you control. The downside to that decision is that you’ll lose access to interest and other possible ways to grow your wealth.
Each consumer faces different financial situations, so the reasons behind an account restriction are highly variable. Here’s a closer look at the common issues people face today when encountering problems trying to withdraw their funds.
1. Institution-Placed Restrictions
When an account becomes overdrawn, the financial institution will often restrict it. If you find yourself in this situation, your bank or credit union allows money to be deposited, but you cannot withdraw anything until sufficient funds are available.
Some banks are known to limit activity without overspending. You might be required to keep a minimum amount in checking, have a specific number of debit transactions, or enforce daily spending limits.
If your account has these restrictions, purchases or checks are typically declined at the merchant.
2. Customer-Placed Restrictions
You have the right to place restrictions on your account. The most common reason to take this step for families today is when they set up a trust account for a child.
When these restrictions are in place, the funds can be withdrawn for specific reasons. They’re usually related to the child’s education, health, or living expenses, especially if the account is a trust.
Some accounts, such as a “529,” are only designed to pay for a child’s college education. These restrictions aren’t usually something that can be lifted unless extraordinary challenges exist, or a court order requires it.
3. Probate or Estate Restrictions
If someone passes away in your family, an estate account is often created to collect assets or pay creditors until all the obligations are fulfilled. Some of the money can go directly to a person’s beneficiaries, but there could also be a probate process to manage.
Encountering the latter issue often makes withdrawing money from the account difficult because of the restrictions placed on it.
Estate funds might be needed to pay medical bills, tax obligations, or funeral expenses. If anything remains, that money gets distributed according to the will or local laws.
4. Government Restrictions
The government is authorized to place restrictions on bank accounts for several reasons. Any or all of the following issues can apply.
- Money is owed to the Internal Revenue Service or another tax agency, so the account becomes restricted because its funds are used to pay that obligation.
- State governments in the United States can restrict or seize bank accounts to manage unpaid child support.
- If a court judgment requires you to pay another party, the bank account could be frozen or have restrictions placed on it to ensure the funds transfer as ordered.
The only way to remove a government restriction is to pay the obligation or set up an arrangement that allows you to accomplish that action in a specific time.
Why Did My Bank Account Become Restricted?
Most banks and credit unions place restrictions on accounts because they have become overdrawn. That means there is insufficient money available to cover purchases or obligations you’ve assigned to it.
Financial institutions can refuse to honor checks written on a restricted account until there is enough money to cover the obligation.
Outside of the four common reasons for accounts to be restricted, there are a few rare instances where other actions cause this issue to occur.
- Student Loan Default. If you defaulted on your student loans, the government might place a hold on your account when there is enough money available to cover this debt. You won’t receive a tax refund in these circumstances because the funds go to that obligation until it is resolved.
- Pending or Active Lawsuit. When a creditor decides to file a lawsuit against you because of an outstanding debt, your financial institution could choose to freeze your account. Although this doesn’t happen often, it is a possibility in some states – especially if a collection agency has served you with intent to pursue in court.
- Criminal Activities. If your bank or credit union thinks that your account is being used to sponsor terrorism, launder money, or forget checks, they are required in the United States to place a hold on the funds while investigating the matter. This permission is available through the existing KYC (know your customer) and AML (anti-money laundering) laws.
- Expired Access. When your debit or credit card expires, it will no longer process transactions for online or in-person purchases. Some financial institutions place restrictions on this access if you buy something different than what you normally do or fail to notify the bank or credit union that you’re traveling.
When your transactions suddenly decline even though money is available, that action is done to protect the cash in your account. The financial institution believes that it could be stolen from you due to fraudulent activity, so they put a stop to things until they can verify that you’re the one who initiated the purchase.
What Is a Restricted Access Deposit Account?
Some banks and credit unions offer a money market account that limits how much access you have to the funds throughout the year.
A traditional bank account provides immediate access to your money whenever you need it, especially if online tools are available. You receive minimal interest for keeping the funds there, but you can quickly access cash if something happens.
Money market and restricted access accounts feature a higher interest rate than a traditional deposit methodology. You receive a higher interest rate on the deposit in exchange for only writing checks or making withdrawals at a limited number.
Most accounts with this feature have a $10,000 minimum deposit requirement, but it can be whatever amount the bank or credit union decides.
The most common deposit amounts for a restricted account range from $10k to $100k. This option falls under the self-imposed category because you decide to limit access in exchange for more interest.
How Long Will My Bank Account Remain Restricted?
Banks and credit unions can choose to keep a restriction indefinitely if the terms to restore access aren’t met. There isn’t a predetermined cap on the dates or actions preventing the account from fully functioning.
The restriction is in place for most accounts because it has become overdrawn. The policies are dependent on the bank or credit union in that circumstance. In most cases, you’ll see the restriction lifted as soon as there is a positive balance in the account, or you’ve met the agreed-upon minimums.
If you’ve had a history of overdrawing on an account, the financial institution could decide to restrict access permanently. You can no longer deposit or withdraw funds when this issue happens because it is effectively closed.
My Bank Denied Me for a Checking Account – What Can I Do?
Unfortunately, opening a new checking account isn’t as easy as taking some cash to a bank or a credit union to make a deposit. These institutions want to know about your financial history before establishing an account or a membership profile.
When you apply for a checking account, the financial institution will run a bank history report on you. This process is different from a credit check as they look to see if you have past accounts that were “Closed for Cause.” That tells them you have a record of not handling your money well, providing the justification needed to refuse the new account.
Banks look for patterns in your financial history to gauge risk. You can be denied service if you’ve had NSF fees that remain unpaid, have a history of writing bad checks, or committed fraud.
Most institutions use a verification service called ChexSystems to access this information. Your data gets run against the company’s database to see if anyone has reported problems with your financial behavior.
If it shows a record, the bank or credit union will find out the name of where you had a past account, the day it was closed, and if you still owe money. The good news is that you have access to this information, so you can know if it will affect you before trying to open a new account.
You can request a free report from ChexSystems once every 12 months through the Fair Credit Reporting Act. Before taking this step, it helps to ask the institution what verification service they use where you plan to have an account.
Will a Bank Pull My Credit Report?
Although past banking records are often pulled when applying for a new account, most banks and credit unions will also check your credit history. This information is used to determine if there is an identity theft issue, fraud problem, or bankruptcy.
Many of the problems are often related to each other, so what doesn’t get caught on one report is found on the other.
When someone writes checks to pay bills that get returned for NSF causes, there’s an excellent chance that they’ll be sent to a collection agency. Even if the account reports don’t catch this issue, the creditor activity will show on the credit report.
If a negative record is found, the process of opening a checking account is typically stopped. You’ll receive a disclosure, often in the mail, explaining why the account cannot be started at that time.
Some banks and credit unions specialize in high-risk customers, but there could be several restrictions on managing your account. The best solution is to enter your current institution’s “second-chance program” or agree to a probationary period to restore your history. Although you’ll typically pay higher fees or not be issued a debit card, you can still access other banking products.
What Should I Do If My Account Gets Restricted?
Anyone experiencing an account restriction should speak to their financial institution to discuss restoration. Each bank and credit union has different options, regulations, and programs to follow. Reportable information typically stays on reports for five to ten years, so don’t close an account if it has a negative balance.
I had an issue the last time we moved across state lines. My tax refund didn’t arrive on time, and we counted on those funds to pay for travel expenses.
The email notifications of automatic transfers and NSF fees were horrifying. Each purchase was honored, but our bank charged a $37 fee. I was at my limit when someone bought gum for $0.87, and those fees were added.
I contacted a payday loan agency to pay off the NSF fees and get the account positive. When the tax refund finally arrived, we used those funds to eliminate the extra debt. It wasn’t cheap, but it was still less expensive than paying all those bank costs.
Track your checking account balance carefully. It’s the best way to avoid banking issues.
