Can my bank close my current account? - Times Money Mentor (2024)

Under new rules, banks will be forced to tell you if they are closing your current account without your consent. Here we explain the reasons why a bank might close your account and what you can do if it happens to you.

The government has announced new rules following the dispute between Nigel Farage and his former bank, the private lender Coutts. The ex-Ukip leader accused Coutts of “debanking” him for his political views.

At first, the NatWest-owned institution said the decision had been made for commercial reasons. Later it apologised to Farage after internal documents were released showing Coutts’s distaste for his “xenophobic, chauvinistic and racist views”.

The argument has highlighted the problem of transparency when banks freeze or close their customers’ current accounts, often with no warning and no reason.

In this article, we cover:

• Why would a bank freeze or close someone’s account?
• What happens if a bank closes your account?
• What changes are the government proposing to bank account closures?
• Can a bank close my account without my consent?
• What happens to my money if my bank account is closed or frozen?
• Will having my bank account closed affect me getting an account elsewhere?

Read more: ‘My bank is shutting my local branch – where can I do my banking now?’

Why would a bank freeze or close someone’s account?

There are a number of reasons why a bank or building society might decide to close your account. The details of this will be set out in the terms and conditions of the current account contract, which you agreed to when opening the account.

The reasons generally relate to any perceived criminal, financial or reputational risk for the institution. They could include:

• You breaking the law – perhaps by being fraudulent or using the account for money laundering
• Breaking the current account contract by, for example, you use it for illegal activity
• Putting the bank in a position, through misuse of an account, where it might break banking rules and regulations
• Lying about your personal information or withholding information
• Failing to repay loans or credit, and developing a bad credit rating
• Abusing bank staff
• No longer meeting the account criteria, such as having a certain level of income
• The account has not been used for a long time. For example, HSBC will close inactive accounts that have a zero balance after just 12 months.
• Some banks will not allow you to maintain your account if you are no longer legally a resident of the UK.

What happens if a bank closes your account?

If a bank decides to shut your account, you should get a letter informing you of the decision one month before the closure is due to happen. Often, you will not be informed of the reason.

Some banks may give you longer than a month so you can find a new account provider.

If criminal activity is suspected – perhaps because a large amount of cash has been deposited in the account from overseas – the bank may freeze your account in the first instance while an investigation is carried out.

Banks employ algorithms that are designed to spot any transaction that is unusual or suspicious.

During this time, money can go into the account, but you are unlikely to be able to make any transfers or withdrawals.

If a large amount of money has been moved into your account for an innocent reason – such as a gift to help you buy your first home – keep any documentation to prove it. This includes paperwork from your solicitor.

Read more: ‘Can we still get a mortgage if my partner has bad credit?’

Can a bank close my account without your consent?

Normally you have to be told that an account will be shut, but this is not always the case.

If you are being investigated by the police, a bank cannot “tip you off”, as outlined in the Proceeds of Crime Act 2002. Bank staff can go to jail if found guilty of tipping off a customer.

In the case of money laundering, unless given permission by the police, a bank will close your account – often without notice – and is not allowed to tell you why.

Banks can also close your account without giving you a reason by following guidelines from the trade body UK Finance. These state that it may not be “appropriate or permissible” for banks to explain their reasoning to a customer in situations that include:

• Abusing staff
• Breaking the terms of your contract
• The bank being ordered to keep quiet about the closure by the police, regulators or the government

Even the Financial Ombudsman Service (FOS) guidelines for banks say: “You don’t have to explain to a customer why you’ve closed their account, but it can be helpful to do so.”

How much warning should I get if a bank wants to close my account?

The FOS requires that banks act reasonably and treat their customers fairly when closing their current accounts, and that they give you at least 30 days’ notice, unless:

• There is a suspicion of fraud
• Bank staff have been threatened or abused

The government has announced plans to ensure that banks give customers at least three months’ notice of closure instead of one.

‘I don’t know why my account was closed. What should I do?’

The first thing to do is complain to your bank and ask for an explanation as to why your account has been closed – if you have not received one.

If that is not forthcoming then the only option is to contact the Financial Ombudsman Service if you feel your bank has treated you unfairly.

Before you can contact FOS, a business has 15 days to consider complaints about:

• payment services – such as bank transfers or direct debits
• electronic money – for example, online money transfers, Apple Pay or travel money cards

For most other complaints, including bank account closures, a business has eight weeks to consider it.

If you haven’t received a final response within the time limits, you can refer your complaint to FOS.

If you’re not happy with the outcome of your complaint, you can then ask the FOS to investigate what’s happened. They will need a copy of the final response letter.

You can make a complaint to the FOS online here. The service is free.

What happens to my money if my bank account is closed?

Usually, your bank should give you warning that it is closing your account. This gives you time to look for a new account with another provider or speak to your existing bank about opening a new pre-paid debit card or “second chance” account.

A prepaid debit card only allows you to spend the money you have loaded onto the card. It can be used as an alternative to a bank account.

Second chance bank accounts are offered at some banks and credit unions to help you if you have had your account closed.

In the case of a frozen account, deposits are still allowed but you will not be able to withdraw or transfer money.

Unless there is criminal activity involved, the bank is required to return your money to you, minus any unpaid fees or charges.The money will likely will come in the form of a check.

Will having my bank account closed affect me getting an account elsewhere?

If your account is closed due to suspected fraud or another serious criminal offence, it is unlikely you will be able to set up another account elsewhere.

If your account is closed due to identity theft or any another issue that you believe wasn’t your fault, you will need to resolve the issue. Contact your old bank so that it doesn’t affect you in the future.

Read more: How a WhatsApp scam could change your fraud refund rights

Do I have a legal right to a bank account?

Provided certain eligibility criteria are met, everyone in the UK has a right to open a basic bank account. These allow for payments in – such as wages or benefits – ATM withdrawals, debit card purchases and the payment of regular bills by direct debit or standing order.

Designed for people who need either to build up or repair their credit score, they don’t allow you to go overdrawn.

The UK’s biggest banks and building societies all offer basic accounts, and others do too. You can be refused one however if you:

• do not pass an identity check or immigration check
• the bank suspects you of fraud or another financial crime
• you have behaved in a threatening or abusive way

A bank or building society doesn’t have to open an account for you and they don’t always have to give you a reason.

What does it mean to be ‘unbanked’?

There are around 2 million people in the UK who do not have a bank account, known as being ‘unbanked’.

It can impact on many areas of your life including how you are paid from work, your pension, and social benefits.

Paying for everyday bills is harder, especially as bank branches, cash offices in councils and post offices continue to close. It also tends to be more expensive. Often the best rates for mobile phones, utilities, insurance and loans are offered to those who sign up to a contract and pay by direct debit.

Not having a bank account can also seriously impact your credit rating meaning that you are unlikely to be offered the best rates – or a loan at all – if you want to buy a home or new car.

Find out more about what can impact your credit rating and how you can improve it.

Tips on opening a new bank account

If you have had your bank account closed and are having trouble getting a new one, there are steps that you can take:

• Don’t just apply to open a current account with a bank. Explore building societies and credit unions too
• Use a credit reference agency to check your credit report if your application is rejected, to understand why and work on improving it if you can
• Try getting a basic bank account instead
• You might also be able to get an account with a mobile app-based challenger bank. These newer banks often have less strict on criteria and include features to allow you to pay bills and build savings
• If you can’t provide the required proof of address and ID, ask the bank what alternative proof they will accept, such as benefit letters or Student ID cards.

We have a round up of the best basic bank accounts.

What changes has the government announced to bank account closures?

The Farage-Coutts case has highlighted a lack of transparency in current account closures, and the limited recourse available to you as a customer in this situation.

New rules have now been proposed by the government to clamp down on “unfair” account closures.

Banks will need to provide you with 90 days’ notice – up from 30 – before they close your account, if the new rules are adopted. This will give you more time to go to the Financial Ombudsman Service and challenge the decision, or to find a new bank.

Banks will also have to spell out why they are closing your account. The government wants to increase transparency and make it easier to overturn unfair decisions. However it is likely that banks will still be able to keep you in the dark if you are under investigation for a financial crime.

An HM Treasury spokesperson told us: “Lawful freedom of speech is a fundamental right that should be respected by banks. There’s no trade-off between that and also catching and locking up those engaged in financial crime.

“We are working closely with industry and law enforcement to ensure that our reforms work well with existing financial crime obligations.”

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