Banks freeze accounts without warning at the fastest rates in history. And, it’s only going to get worse.
Every year, millions of innocent people have their accounts frozen without warning as financial institutions frantically try to keep up with new banking laws and increasingly strict KYC/AML regulations.
If you haven’t experienced a bank account freeze yet – get ready. In the coming years, you probably will. Or worse than a bank account freeze is that the bank may decide to close your bank account overseas.
Imagine you wake up one day and discover you can’t log into your bank account. Or use your debit card.
In a panic, you call the bank and are told that your bank account has been frozen.
Staff can’t tell you why (that’s illegal) and they can’t tell when you’ll be able to access your funds.
In the meantime, you can’t receive payments, make transfers, pay for bills, or pay for basic necessities.
You’re left financially stranded and cut off from your bank account as the account holder.
As a business owner, having an account frozen is a nightmare. You can’t pay staff, receive customer payments, or pay suppliers. Your business is in operational limbo until the bank decides to unlock your account and release your funds. It’s terrifying.
KEY TAKEAWAYS
- There are many reasons why a bank may choose to freeze your bank account
- There are many ways you can prevent a bank account from becoming frozen
- If an account is frozen it can last a few months or longer depending on the reason
- You lose access to your funds when the account becomes frozen
At GlobalBanks, we see frozen accounts happen on a regular basis. We know how stressful they can be. We’ve helped hundreds of subscribers who had accounts frozen without warning, some for months (others for years) with no explanation.
So in this article, we’re going to talk about frozen accounts. Why they happen, what to do about it, and how to protect yourself.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Why Do Banks Freeze Bank Accounts?
- How to Prevent a Frozen Bank Account?
- Who Is Most Vulnerable to Experience a Frozen Account?
- How to Protect Yourself & Avoid Frozen Bank Accounts
- Do You Want Help Opening Bank Accounts?
Why Do Banks Freeze Bank Accounts?
The most common reason an account becomes frozen is because of their internal system, which flag something in your bank account as “suspicious” or “irregular.”
What exactly is suspicious account activity and why are banks shutting down accounts? It depends. Each bank has its own definitions and rules. And also they have different sets of predetermined actions that set-off alarm bells and trigger account freezes.
Generally speaking though, a bank will freeze your account if there is an activity, behavior, or transaction that the bank’s internal system flags as suspicious.
Why did the bank’s system flag that action, behavior, or transaction? Because that action sometimes indicates fraud, money laundering, terrorist financing, or criminal activity. And, the bank needs to investigate it and make sure nothing illegal (or risky) is happening.
But, here’s the rub (and what most customers miss): Financial institutions get slapped with massive penalties if they facilitate illegal activity. In other words, if a financial institution sees something suspicious, doesn’t freeze the account and investigate, and that account is doing something fraudulent or illegal – the bank gets punished.
For financial institutions, the consequences are real. Think massive penalty fees, angry regulators, pissed off shareholders, more scrutiny from government agencies, a PR disaster, strained correspondent bank relationships, and more.
So, accounts aren’t becoming frozen for no reason – it’s because there are serious legal and financial ramifications for them if they don’t.
Here are some reasons why a bank might freeze your account:
- You sent or received money from a country that the bank deems suspicious or high-risk.
- A creditor or debt collector obtained a court judgment against you.
- You owe the tax authority in your country money and they froze your account so they could recoup whatever amount they think you owe.
- You had transaction(s) that the bank thinks could be fraudulent or reflect criminal activity.
- Transacting with another party that a bank views as suspicious or high risk.
- Transacting with a third party that the bank can’t identify (e.g. Transferwise, Revolut, fin-techs with intermediary accounts).
- Abnormal behaviors or transaction patterns that are different from your typical, day to day activity.
- Large incoming or outgoing transfer. For instance, if you receive a large incoming transaction that is above average.
- Too many transactions. If your monthly transaction volume is higher than normal or above a certain threshold.
- You logged into your account from too many different countries with a certain time period.
- Someone has logged into your account from a strange location, IP address, or too many countries within a certain timeframe.
- You failed to submit a document that the bank needs for compliance purposes (e.g. identification, proof of your address or tax residency).
- Someone has filed a complaint to the bank about you or your business.
- Your online presence has negative references, questionable content, or shows that you’re in a high-risk industry (e.g. crypto, gambling, cannabis, adult entertainment, etc).
- Your account information is not up to date or your account isn’t fully verified.
- Detected fraudulent activity on your account.
- You may be a victim of fraud so freezing your account is the only way to protect you.
How to Prevent a Frozen Bank Account?
Here are some ways you can avoid having the bank freeze your account in the future.
Don’t Surprise Your Bank
If you’re expecting a large transfer, call your bank and let them know before it arrives. For instance, if your business is planning a big promotion or product launch, tell your bank about it ahead of time. Otherwise, if your bank sees a random 10x spike in daily incoming transactions – without warning and with no supporting documents, they might freeze your account.
Take Account Opening Seriously
When you apply to open your bank account, answer all the questions about your estimated transaction volume and frequency very, very carefully.
Know Your Account Limitations
Find out if your bank account has any limitations or restrictions. Many people aren’t aware these limitations exist and will be surprised when their account is frozen for not adhering to them. For instance, maybe your bank only allows a certain number of transactions per month or requires your transaction volume or frequency to be under a certain threshold.
Who Is Most Vulnerable to Experience a Frozen Account?
Experiencing a freeze on your account is catastrophic. And not surprisingly, it’s a scary situation. Especially when you can’t receive money, pay bills, or buy groceries.
But frozen accounts are far more disastrous and painful for people who only have one bank account. They don’t have a backup bank account or any way to access emergency funds.
Similarly, if you’re heavily reliant on EMIs or fintech solutions like Revolut, Monzo, Monese, N26 – be extra careful. There’s a high chance that you’ll experience a freeze on your account in the future. Newer fin-techs are heavily reliant on algorithms for compliance and transaction monitoring, so account freezes are more frequent and come without warning.
Worse, the freezing of the account can last months, even years.
You immediately lose access to your money with a frozen bank account. You can’t log in to an online bank account . You can’t send or receive money. And you can’t use your debit card. Any automatic bill payments that you previously set up are shut off – which triggers late payments and penalty fees.
And if your bank account is already frozen, you can’t just call up the bank, ask to close your bank account and get your money back. Your funds are unavailable until the bank decides to release them.
How to Protect Yourself & Avoid Frozen Bank Accounts
New regulations, increasingly strict banking laws, and KYC/AML requirements are causing a rapid increase in bank account freezes across the world.
As a result, account freezes are happening faster and more frequently than ever before in history.
This trend will continue. Especially as financial instituions and fintechs will rely even more on new technology and algorithms to help them keep up with changing laws.
Here’s how to protect yourself and make sure that you always have access to your money – no matter what happens next:
Open Backup Bank Accounts
Don’t be dependent on a single bank account. Make sure that you always have multiple accounts. If one bank account is frozen or shut down, you always have a backup. Having a bankup account can ensure that you and your business always have options and are never dependent on a single bank.
Diversify Your Money Across Multiple Bank Accounts
If 100% of your wealth is in a handful of accounts in one country, that’s risky. In seconds, you can lose access to your bank account without warning. It just takes a judgement from a court, an overreaching government, creditor, or a frivolous lawsuit. Spreading money amongst multiple accounts minimizes risk and just makes good financial sense, especially if you live in a litigious country.
Have a Bank Account Outside Your Home Country
Having a bank account outside of your home country makes sense. Having an emergency fund you can always rely on is smart. It’s also a no-brainer risk management strategy. Shield your assets from financial predators, creditors, overreaching governments, frivolous lawsuits, and more.
Do You Want Help Opening Bank Accounts?
If so, you can access GlobalBanks Insider and start the process of applying for an offshore account in a few clicks.
GlobalBanks Insider is a dedicated account opening solution that involves direct support from our team and direct introductions to the banks of your choosing. It gives you instant access to the…
+ Direct support from a team of banking experts
+ Direct introductions to your desired banks
+ Answers to your most pressing questions and challenges
+ Expert insights on which banks to choose & why
+ Plus FULL access to our entire suite of account opening tools and intelligence!
And “yes!” GlobalBanks Insider is designed to help foreign and non-resident individuals and companies open bank accounts.
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