What can you do if a bank closes your account

Most of us rely heavily on a single current account for day-to-day banking, and statistics suggest that we’re still more likely to get divorced than to switch our banks. 

However, our loyalty is not always replicated by the banks that we use, who can sometimes close accounts without even telling customers why. 

The Financial Ombudsman, which deals with financial complaints, says it is expecting a rise in complaints from those who unexpectedly lose access to their current accounts. Abby Thomas, chief executive of the Ombudsman service, says that there is higher public awareness of these sudden closures, and that this is expected to drive more people to the Ombudsman to find out if they can have their account reinstated.¹ 

Many of us don’t understand what our rights are when an account is closed including how to get at our assets and how to set up new financial products.  

Here’s what to do if it happens to you. 

Check the rules have been followed 

Your bank should normally tell you why it is closing your account and give you some notice to open a new one. 

The Financial Ombudsman says that in ‘most cases’ you should have two months to switch accounts, which is ample time since the Current Account Switching service aims to complete an account switch in seven working days. 

However, there are some reasons why a bank might freeze your account immediately or shut your account without a reason, and this can make things more difficult. 

Each bank has its own rules on account closures, and it is worth checking the small print. 

For example, HSBC reserves the right to close your account immediately without any notice if you abuse their staff, given them false information or haven’t given the bank information about your tax information.  

The bank also says it can also do this if it is “reasonable for us to believe” that you have placed them in a position where they might break a law, regulation, or code, or if there is a security breach on your account. 

Barclays has very similar small print, saying it can close your account if it has “reasonable grounds” to think you are committing fraud, if it thinks you are using your account for business or if you or a joint account holder live outside the UK. 

Both banks and most of their rivals also reserve the right to close your account for no reason at all if they give you two months’ notice. 

The Government is planning to introduce new rules that make it harder for banks to close your account, but these will not be set before Parliament until the summer.² 

Explain your circumstances and complain 

If you get a letter saying your account is going to be closed, you can check whether the reason given is a correct one. If it is not, you can complain and try to get your account reinstated. 

It is harder if the bank does not give you a reason, and they do not have to do so if they feel that you have acted fraudulently. 

If this is the case the bank can freeze your account immediately, meaning that money could go into the account, but you would not be able to withdraw it or transfer it. 

If this happens to you, you can still complain, but the bank may take some time to investigate. In some cases, there may have been a simple mistake, or a suspicious transaction may have been flagged on your account by an algorithm.  

For example, if a large amount has been put into your account because of a house deposit or inheritance, this may look suspicious, and your account may be frozen. Once it is investigated, this should be unfrozen, so ensure you contact your bank and show them the necessary paperwork. 

If your bank does not unfreeze the account or will not reconsider reopening it, you can complain to the Financial Ombudsman Service (FOS) who will make a final and binding decision on whether the account should have been closed. You will need a copy of the final decision from your bank to do this, and the service is free. You can make your complaint here. 

Apply for a new account 

If your bank proceeds with the closure of your account, it should still give you your money back. This can take time, however, if an investigation is ongoing or they suspect criminal activity. 

You may also get the money back in the form of a cheque which is obviously difficult if your account is closed.  Open a new current account as soon as you can. If you have enough notice of closure, you can switch accounts, as the Current Account Switching service takes seven working days, and this means direct debits and other payments should transfer smoothly.  With less notice or a frozen account your options are more limited. If fraud is suspected, it may be hard to find a bank that will open an ordinary account for you.  If you are struggling with opening an ordinary current account, you could try applying for a basic bank account, which require fewer checking processes and come with no fees.  Otherwise, you may simply have to wait until the bank’s own processes and investigations are complete to be able to bank again.

Prevent this happening again 

Since banks do not always have to give a reason for account closure and mistakes can happen, it makes sense to guard against a situation where your only current account is closed. Some ways to do this include  

• Opening a second current account and spreading your money between them so you have a way of banking if your account is suddenly closed 

• Always calling your bank before a large payment such as an inheritance or house deposit hits your account 

• Making sure you have the appropriate account when your needs change, for example if you are moving abroad. 

Take heed of new rules  

Having your account closed can be a disquieting experience, especially if you do not understand why. New rules coming in after this summer mean that banks should give more warning and a reason before accounts are shut.  

However, because mistakes can happen it is always worth having a Plan B when it comes to your banking.