3 Reasons Your Bank Account Is Frozen and How to Fix It

Finding your bank account is frozen can hinder your business transactions. Not only will this result in late payments for your business, but you will also find it difficult to manage your cash flow.

There are many reasons why your account can be frozen by the bank. It could be due to some suspicious activities, unpaid debts, or simply a mistake made by the bank. It can be inconvenient for you to run your business without a bank account.

You must take immediate action to resolve the issues at hand to address the issue of a frozen bank account to keep your business financially stable.

This guide will help you understand what causes your bank account to be frozen and provide you with some guidelines on how to unfreeze it, as well as prevent it from happening.

What Is a Frozen Bank Account?

When a bank freezes your account it typically means that you are not able to access its core features, such as making a bank transfer or withdrawing funds from it.

It’s not ideal when your transactions are put on hold. The bank will suspend you by applying certain restrictions to your account. However, it’s not entirely inaccessible, as you can still monitor and check your balance in a frozen bank account.

How a frozen bank account works is that the bank will hold (freeze) any incoming and outgoing funds during the period where your account is frozen. So, whether your account receives a fund from a transfer or if you have scheduled payments during this period, those transactions will be put on hold.

Reasons Why Banks Can Freeze Your Account

When a bank account is frozen, it puts the account's activities on hold, preventing the owner from accessing the money inside the frozen bank account until the situation is resolved.

Banks routinely monitor accounts for suspicious activity to decrease fraud risks or to catch any illegal activity raising money for terrorist activities.

When this happens, your account is put under investigation, and your funds are frozen. Effectively, you will not be able to withdraw your cash online or at the ATMs.

But there are certain reasons which explain why this can happen. Here are the three main reasons why your bank account can be frozen.

1. Suspicious or Illegal Activity from Your Bank Account

Your bank freezes your account if it considers that your recent activity is suspicious. These measures are taken to prevent money laundering and terrorism.

For instance, Hong Kong banking laws require banks to report certain suspicious activity to the Joint Financial Intelligence Unit (JFIU).

Most companies have nothing to do with terrorists or organized crime, but patterns of behavior or dollar amounts can be automatic red flags.

Various banking activities can trigger a frozen account and investigation, some of the following reasons represent factors on why your bank account may be investigated.

• Frequent cash transactions. If you're receiving money from a suspicious person or a business, your account may be frozen and put under investigation.
• A sudden increase in activity. If your usual pattern of incoming and outgoing payments suddenly goes up substantially, either in frequency or amount, the bank may grow suspicious.
• Business bank account freezes linked to suspicious banking activity can be the trickiest to deal with.

Sometimes law enforcement obliges banks to place account freezes and open up investigations. If there's an ongoing legal investigation, the bank may be under binding legal order, and customer service representatives may not know what's going on or legally may not tell you.

However, if the account is frozen based on just one problematic transaction or a recent pattern that got red-flagged by coincidence, you may be able to clear it by showing where the money came from and what it was for.

2. Unpaid Debts to Your Creditors or the Government

Your bank account can not only be frozen by the bank itself but it can also be done through your creditors who you may have unpaid debts with. Though they do not have the authority to freeze your account directly, they can provide information about your bank account.

The creditors, who are mostly financial institutions, will first need to notify you with a court order provided. Once that is approved, they will have permission to contact your bank directly and make a request to freeze your account.

Your bank will then contact you to notify you of the case. Typically, they are obliged to follow the laws before proceeding with the court order presented by their creditors.

If you have unpaid debts, creditors can require the bank to freeze your account to get you to meet debt collection obligations.

The same circumstance can also be applied to debts owed to the government. The debts can be those related to government fees and other types, including:

• Unpaid taxes
• Loans, comprising car, student, personal, and other types of loans
• Mortgages
• Settlements on divorce

If this occurs, get the details of the creditor’s attorney as soon as possible and arrange a payment schedule for your unpaid debts to lift the frozen bank account and avoid further issues.

3. Unusual Transactions by Bank Security Measures

With banks, reputation is one of the most crucial that they focus on. Keeping your money safe is not only their highest priority but also ensuring that the security measures are intact. For this reason, banks tend to take a serious approach to security and preventing fraud.

If your spending patterns alter, for instance, banks can start to suspect there may be something unusual with your account, even with large purchases or withdrawals.

For instance, HSBC Hong Kong suggests that every account holder must be cautious of three things to prevent their bank account from being frozen, such as sharing their personal and sensitive information, getting involved in offers and deals that have no proof of income, and scammers claiming to be from law enforcement offices and so forth.

💡 Tip: If you’re traveling abroad while using your local bank, inform your bank before your departure. This way, there is an alignment between you and the bank and it helps them understand not to freeze your account.

What Can You Do to Unfreeze Your Bank Account?

There are a few things you can do to unfreeze your bank account, however, you will first be notified by the bank.

The first thing you can do is to immediately contact your bank to understand the course of action to unfreeze the account and to check that it was not a mistake.

Sometimes, your bank may tell you which specific transactions triggered the account freeze and will walk you through what documentation could help unfreeze your account.

Here are some things you should consider before taking the necessary actions.

Contact Your Bank

Cooperating with your bank is usually the fastest and best way to solve the issue.

The bank will request that the company director meets with a bank representative in person at one of their branches.

In addition to this, they will ask for the most up-to-date information of the account holder to be provided to the bank representative to apply to reactivate the account. The processing lead time varies from one bank to another.

Verify the Reasons for Your Frozen Bank Account

Before unfreezing your bank account, It is recommended that you verify with your bank what all the information and documents required for the reactivation process are.

Whether it is frozen for suspicious activity, by mistake, or through unpaid debts and longstanding payments you may owe to the bank.

If your situation is more complicated than any of the scenarios we listed above, you may not be able to get a straight answer about the reason why your bank account was frozen or how to solve it. If you let the situation runs for too long, your bank account could be automatically closed due to inactivity.

📑 Read more: Find out what you can do to avoid getting your bank account closed and how you can get money out of it.

How Can I Prevent My Bank Account From Being Frozen?

Not responding to your frozen bank account is not an ideal practice. In fact, it could be one of the worst things you can do. For this reason, you must take the right actions even before your bank will freeze your account.

Some of the following tips can help to prevent your bank account from being frozen:

• Consolidate with your debt collectors: Falling to do so could enforce them to take legal actions, which can cause complications for you. Have a conversation, and see how you can find ways to settle your debts to prevent your bank account from being affected.
• Keep track of payment deadlines: Ensure that you make payments associated with this account on time. Scheduling your payments automatically can be a great way.
• Maintain a positive account balance: Monitor your bank account’s activities. See if any unrelated transactions could be suspicious, thereby avoiding any relation with it.

Do not mix your funds in a single bank account: For instance, use one bank account for certain purposes, such as direct deposit, social security, expenses, and more.

Bottom Line

Having an active bank account is crucial for your business. If your bank account is frozen, your business operation can hinder as well as your cash flow.

Bank can freeze your account due to reasons such as suspicious activities, security measures, and unpaid debts you owe to certain parties. When this happened, the best approach you can take is to stay calm and take action immediately to resolve the issues, so that it will not have any negative impact on your business’s financial stability.

Understanding why banks may freeze your account will help you to also take the appropriate steps to unfreeze it. Subsequently, this will lead to better outcomes for all parties involved. Nevertheless, taking the precautions mentioned in this post will certainly aid you in preventing your bank account from being frozen.