What Is an Account Freeze?
An account freeze prevents some bank or brokerage transactions from taking place. Typically, any open transactions are canceled, and checks presented on a frozen account aren't honored. The account holder can still deposit money into the account, but may not be able to withdraw it.
Key Takeaways
- Account freezes prevent transactions from going through in a bank or brokerage account.
- Essentially, money can be deposited into the account but no money can leave the account.
- Account freezes can be put in place by an account holder (in the event of a lost or stolen debit card), or the bank or regulatory authority.
- Freezes can occur for many reasons, including suspicious activity, suspected criminal activity, civil actions, or garnishments.
How an Account Freeze Works
Account freezes can be initiated by an account holder or a third party, such as a government, a regulatory authority, or a court order. When your account is frozen, the bank may send you a notice. However, you likely won't receive advance notice. Instead, you'll receive notice after the account is frozen. A joint bank account may be frozen, even if a debt or problem is only the issue of one account owner.
The account freeze will not allow you to withdraw money in any way, including through ATM machines or automatic payments, by writing a check, or through other transactions. You can still deposit funds but may also lose access to those funds.
Some funds in your bank account cannot be frozen if owed to a commercial entity, according to state and federal law. These funds include your Social Security payments and Veterans Administration benefits, as long as the amounts are added to your account by direct deposit.
A brokerage account may face a 90-day restriction if you engage in activities violating federal trading regulations, such as buying and selling a security before paying for it, also known as "freeriding."
A brokerage account restriction is not a true freeze—you can still purchase stocks and other securities, but you must pay for the purchase on the trade date.
Types of Bank Account Freezes
Account freezes can be initiated by different entities—and even by you. Many banks and credit card providers now allow consumers to freeze an account online. If you lose your card or it gets stolen, you can quickly freeze the account to prevent spending.
Court Order
One of the more common reasons for an account freeze is due to court-ordered garnishments, such as when a collector wins a lawsuit against you for an unpaid debt. Your bank or credit union may then be asked to provide money in your account. While the process is playing out, your account could be frozen.
Government Action
A government or regulatory authority may freeze an account due to suspicious activity or suspected criminal activity or to pay past-due child support. Some states can temporarily freeze a bank account to stop suspected financial abuse involving older adults.
Bank Failure
If a bank fails and is closed by the government, bank accounts may temporarily be frozen so that insured deposits can be provided to bank customers. While this allows you to access any insured deposits, it may also mean your transactions and automatic payments may not go through.
Accidental Deposit
If a deposit was credited to your account by mistake, the deposit amount could be frozen or put on hold until the issue is resolved.
Account Holder Death
Furthermore, a bank or brokerage account may be frozen when the account holder dies, depending on how the account is set up—even if it's a joint account.
A frozen account can result in missed payments, fees, and problems with your credit report. Act promptly to address a frozen account and ensure your monthly rent, mortgage, or other bills are paid on time, and get legal assistance if necessary.
How Do You Freeze a Bank Account?
You can freeze your bank account to prevent any debit transactions from clearing by logging into your online banking platform or mobile banking app (assuming your bank offers the option). Or you can contact customer service and request an account freeze.
Why Would a Bank Freeze an Account?
Banks can freeze an account for a variety of reasons, including suspicious or illegal activity, or unpaid debts due to creditors or governments. Banks may freeze accounts for using the account in a manner that goes against its policies.
How Long Can a Bank Freeze an Account for?
There is no set timeline that banks have before they have to unfreeze an account. For more complicated situations, the bank may request detailed information and take 30 days or more to review and decide whether to unfreeze or close the account entirely or release a portion of the funds to you—such as Social Security or other federal benefits.
The Bottom Line
Banks and brokerages have the ability to freeze a bank account for a variety of reasons. If you discover that your account has been frozen, you should contact your financial institution as soon as possible to learn the reasons for the freeze and what you need to do to have it lifted. Your next steps may require reaching out to creditors expecting payment, and getting legal help from an attorney.
