Frozen bank accounts can cause serious issues for account holders, delay important payments, and even cause credit issues for years to come.
And, while most people have backup accounts to avoid these problems, having your account frozen can still wreak havoc on personal and business banking.
Fortunately, it’s possible to avoid having an account frozen if you understand the reason why they are closing a bank account overseas in the first place.
KEY TAKEAWAYS
- There are many reasons why banks freeze accounts
- Proper steps should be taken if your bank account becomes frozen
- It is possible to avoid having your account become frozen
- It’s important to open an account with a bank that doesn’t have a history of issues
A frozen bank account can be a major financial setback that can happen for a wide range of reasons. For instance, banks can freeze an account due to unusual activity, unexpected transactions, engaging high-risk jurisdictions, and much more. That said, you can avoid having your account from becoming frozen altogether if you know which steps to take and how to communicate with your bank effectively.
On the other hand, if you don’t notify the bank, submit supporting documents, or provide proof the bank has wrongfully frozen your account, the bank will likely shut down your account permanently.
Fortunately, if the account has not yet been closed, an account that is frozen can be unfrozen. And, with the right information and strategies, you can completely avoid having your accounts frozen, to begin with.
In this article, we’ll share helpful tips on how you can possibly avoid having your account become frozen. We’ll also uncover the multiple reasons why banks put a freeze on accounts. And, of course, we’ll share what your next step should be if you’re faced with having the funds frozen.
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Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Reasons for a Frozen Bank Account
- I Have a Frozen Account… What Happens Next?
- Protect Yourself From a Frozen Account
- Do You Want Help Opening Bank Accounts?
Reasons for a Frozen Bank Account
It’s not in the bank’s interest to have their customer accounts closed or to have banks freeze accounts. Whether it’s charging fees, earning interest on credit products, or lending out customer deposits, banks earn money by keeping customer accounts open.
So, if a bank decides to move forward with freezing your bank account, they must believe that there’s a very good reason for the decision.
In most cases, that means acting early to avoid penalties from regulators related to any (potentially) illegal activity. That’s why, if a financial institution notices any red flags, they won’t hesitate to freeze a bank account.
Let’s take a look at some of the most common reasons why this happens…
Reasons for a Frozen Bank Account
- Suspicious activity that resembles money laundering
- Unable to provide documents to support transactions
- Transfers to and from high-risk jurisdictions
- Transacting with a third party the bank can’t identify
- Court judgment has been filed against you
- Transactions that are different from your typical activity
- Didn’t notify the bank of a change in company details
- And more
Of course, rules and regulations differ from country to country. So, the reasons why your bank account may be frozen can differ depending on where you bank. But generally speaking, these are some of the most common reasons why your bank account might be frozen.
Now, as mentioned above, there are ways to avoid having your account become frozen. However, sometimes this can’t be avoided. And, unfortunately, your bank is not going to warn you before they freeze the bank account.
So, you’re going to want to understand the possible reasons why your bank account has become frozen and prepare yourself on what to do next.
I Have a Frozen Account… What Happens Next?
If the bank freezes your bank account, there’s probably one question above all that you care about:
“How can I get access to the funds in my bank account and start banking again?”
Well, not all situations are the same. So, what you do next will likely differ from someone else.
But, there are a few general steps that most people can follow.
Step 1: Contact Your Bank
Obviously, it’s going to be important to contact your bank to ask why your bank account is frozen. This will help determine whether or not their reason is valid or not. And, whatever reason they provide, will help you determine what to do next.
At this point, you should request information on why the bank account was frozen, what specific activity flagged the account and led to the bank making this decision, and what steps can be taken to unfreeze the account.
Step 2: Submit Supporting Bank Account Documents
If your bank can pinpoint a reason (like a specific transaction), and you’re able to submit documents supporting this transfer, the bank should unfreeze your bank account without any further problems.
But, if you’re unable to provide such documents, you’re going to run into more serious issues. In most cases, this means that your bank account will be closed completely.
Of course, if your bank account is closed, you will then need to open a new bank account where your funds can be deposited. Though the process and timeline for this to take place will be uncertain and vary from bank to bank, and country to country.
Step 3: Visit the Financial Institution
If after submitting supporting documents your bank account still isn’t accessible, it might be time to visit the bank in person.
Of course, if you’re dealing with an international bank, visiting the branch can be a costly endeavor — that’s why bank selection is so important upfront.
An in-person visit actually accomplishes a few things…
First, it allows the bank to verify your identity in person, which may be important if the bank thinks your bank account is high-risk.
Secondly, it allows you to explain the reason for the action that flagged the account in the first place — such as a specific transfer or payment.
And lastly, you will be able to communicate directly with your banker face-to-face. This is very different than dealing with customer support or being on hold for hours.
In other words, sometimes an in-person visit can be the most effective way for an account holder to resolve the issue.
Of course, the best-case scenario is that you don’t have to deal with having a freeze on your account in the first place. To this end, we share some tips on how to protect yourself from a frozen bank account below.
Protect Yourself From a Frozen Account
Many people end up having their accounts frozen for invalid and completely avoidable reasons.
And, while that might sound scary, it’s actually good news. It means, with the right information you can avoid the mistakes that lead to a bank account being frozen.
With this in mind, here’s a list of the ways you can protect yourself from having your account become frozen…
Ways to Protect Yourself From Having an Account Freeze
- Choose financial institutions that don’t have a history of issues
- Diversify your funds and assets across multiple banks (and countries)
- Don’t surprise banks with unusual or unexpected activity
- Choose to bank in safer banking jurisdictions
Let’s dive into each of these topics further…
1. Choose Banks That Don’t Have a History of Issues
Before you open a bank account, it’s worth knowing a bit about the bank’s history. For instance, has the bank had issues with regulators, faced major penalties or fines, or lost correspondent accounts in the past?
Banks that match the above description tend to be under the careful watch of regulators, which means their compliance teams can be a bit trigger-happy when it comes to freezing a bank account. So, unless you have a very good reason for banking at this kind of bank, they’re better off avoided.
2. Diversify Your Assets Across Multiple Banks (And Countries)
As we’ve discussed in past articles, not having a backup bank account can lead to many challenges. Not the least of which is losing access to your funds when your bank freezes your bank account.
So, diversifying your funds across multiple accounts can provide an extra layer of safety.
In fact, with a backup bank account, either a checking or savings bank account, you will be able to access your funds to continue paying day-to-day expenses. But also, pay suppliers and receive payments if you have a business, pay a debt collector or a judgment creditor, and even hire and pay a lawyer for legal financial support if needed to unfreeze your other account.
Importantly, you shouldn’t be dependent on one single bank account. Instead, diversify your funds between multiple accounts. That way, you will always have options if one of your accounts is ever frozen.
3. Don’t Surprise Banks With Unusual or Unexpected Activity
First things first, don’t surprise your bank with unusual or unexpected transactions.
In other words, if you or your business is expecting a larger transfer that’s different from your typical day-to-day transactions, let your bank know in advance and provide supporting documents for proof. That way, when this transaction does go through, the bank will already have all of the information required to process and rationalize the transfer internally.
If you don’t take this step, an unexpected incoming or outgoing transfer can result in an account freeze.
4. Choose a Safer Banking Jurisdiction to Open a Bank Account In
Another possible way to protect yourself from having your account become frozen is by opening an account (or multiple accounts) in a safer banking jurisdiction.
By doing so, you can usually access more sophisticated financial institutions, more educated bankers, and less scrutiny over each transfer once you have an established relationship with a bank.
Of course, not all banking jurisdictions accept non-resident foreigners. And, the top banking jurisdictions are often very difficult for non-resident foreigners to access.
But, if you know which banks (and bankers) to contact, which account opening strategies to use, and which countries best align with your client profile and banking objectives, the process for account opening can be more streamlined.
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