By Jacqueline DeMarco ·August 07, 2023 · 7 minute read
We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey.Read moreWe develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide.We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right.Read less
Accidents happen; they’re simply a part of life. And one of the hiccups that can occur is a direct deposit going to a bank account that is closed. Maybe the account holder shut it or the financial institution did, but either way, the money may seem to be lost in the ether. Not a good feeling!
If you’re in this situation or worried about it occurring, relax. The money isn’t going to vanish into a black hole. The issue can usually be resolved, and there are several ways to track and reclaim the funds.
Key Points
• Direct deposits to closed accounts are usually returned to the sender.
• The bank may hold onto the funds and give the account holder time to reopen the closed account.
• Banks may issue a paper check to the individual who owns the closed account.
• To avoid a misdirected deposit, it’s important to double-check account numbers and cancel direct deposits before closing a bank account.
What Is a Closed Account?
A closed account refers to a deactivated or terminated account; in other words, it’s no longer open and available for deposits and withdrawals. The account holder, a custodian or the account, or the banking institution can usually close an account.
Why might a bank close an account? This can be what happens when your bank account is negative and you fail to replenish it and/or pay overdraft fees. Or perhaps the bank has seen activity they don’t think is legitimate, among other reasons.
Once this happens, it’s generally not possible to deposit funds by direct deposit or otherwise into the account.
(We’ll walk through exceptions to this rule shortly.) Often the term “closed account” refers to a checking or savings account, but it can also refer to a derivative trading, auto loan, brokerage, or credit card account.
💡 Quick Tip: Consumers spend more than they realize on bank fees every year. With an online checking account with no fees from SoFi you won’t pay an account fee, and you even get overdraft coverage for up to $50 with qualifying direct deposits.
What Can Happen to a Direct Deposit if It Is Sent to a Closed Account?
Sometimes, you may have gone to the trouble of setting up direct deposit in the past, but then the account later winds up closed. You might wonder what happens if a direct deposit is sent to a closed account.
Most banks have a standard process they follow when misdirected money is received. Let’s look at a few different situations that can play out.
Direct Deposit Will Be Returned to the Sender
In many cases when someone tries to send money to a closed account, the bank will simply return the funds to the sender or decline the transaction. It can take about five to 10 days for funds to be returned to the sender. This timeline can speed up if the account holder to whom the deposit was intended is in good standing with the bank.
Bank Can Possibly Hold Funds
If a deposit is issued to a closed account, the bank may choose to hold onto the funds and may give the account holder time to reopen a closed bank account. Reopening a closed account, however, is only possible in a couple of scenarios. It’s not a sure thing.
Sometimes, a situation arises with what is known as a dormant account. This means there hasn’t been any activity over a period of time except for interest accruing. You may be able to get the account fully up and running again by contacting your financial institution.
In other cases, you might be able to reopen an account that is frozen. In the case of a frozen account, you may not be able to withdraw funds due to the financial institution’s decision (perhaps there is activity that doesn’t seem legitimate) or a court order (that is, a judgment against you). In some of these scenarios, you may be able to fix a frozen account by talking with your bank, or you may need legal assistance.
Banks may be more willing to work with customers if this is the first time a situation like this (meaning a dormant or frozen account) has happened. If a deposit was intended for you and you are able to reopen your account, this issue can resolve quickly—possibly within 24 hours.
Bank May Issue a Paper Check
Some banks choose to issue a paper check to the individual who owns the closed account. Other times, the company or individual with whom you set up direct deposit may get their funds back from the bank and then may make the payment via a paper check.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
When Does a Bank Return a Direct Deposit to the Sender?
If a bank receives a direct deposit for a closed account or for a faulty account number, they may choose to return the direct deposit to the sender or to simply decline the transaction.
Can a Direct Deposit Reopen a Closed Account?
Occasionally, a direct deposit being sent to a closed account can trigger its reopening. A bank may choose to give a customer the chance to reopen their account. They might hold onto the funds until the account is reopened so they can complete the direct deposit.
This happens very much on a case-by-case, bank-by-bank decision. Communication with your financial institution can be very important in this situation. Next, you’ll learn more about how this works.
Recommended: How Long Does a Direct Deposit Take to Go Through?
What Can I Do if My Direct Deposit Was Sent to a Closed Account?
If a direct deposit was sent into a closed account, the best thing to do is to contact the bank the funds were sent to. This can help you resolve the issue as quickly as possible. Every bank has its own processes for handling situations like this. Yours can help you understand what the best next steps may be.
The bank may or may not play a role in getting the funds to you. In some cases, you may need to deal directly with the payor. But in either case, your financial institution should be able to give you guidance.
Also, remember that while it can be stressful when a direct deposit goes to a closed account, the money won’t be lost. You should be able to get your funds back.
Avoiding a Misdirected Direct Deposit
To avoid having a direct deposit sent to a closed account, it’s best to get ahead of the issue. These are some steps you can take to help avoid a misdirected direct deposit.
• Double-check account numbers on direct deposit forms. Whenever filling out a new direct deposit form, it’s a good idea to double (if not triple) check the account numbers on the form. Likewise, if you are expecting a recurring direct deposit to a closed bank account, it’s important to get it redirected to a current open account and carefully check that the digits are correct.
• Cancel direct deposits before canceling a bank account. To help avoid any issues with direct deposits, it’s a good idea to cancel or alter any direct deposits before closing a bank account. Then, you can make sure payments are heading to a bank account that can receive the funds. That way, any issues can be resolved before the account closes so the money doesn’t get stuck in limbo.
Recommended: Are You Bad with Money? Here’s How to Get Better
Banking With SoFi
Not happy with your current bank? Why not open a bank account online with SoFi Checking and Savings? We’ll help you bank better. When you open an account with direct deposit, you’ll earn a competitive APY and you won’t pay any account fees. What’s more, qualifying accounts can have direct deposit paid up to two days earlier — among many more perks!
FAQ
Can a direct deposit go into a closed account?
What happens if a direct deposit goes to a closed account? There are several outcomes that vary bank to bank. In some cases, the financial institution may hold onto the funds and let the customer reopen their account to claim the money; it might send the funds back to the payer or decline the transaction; or it may choose to issue a paper check to the payee.
How long does it take for a payment to bounce back from a closed account?
If an individual or business issues a direct deposit to a closed account, the bank may choose to either decline the transaction or send the funds back to the payer. If they choose to send the funds back to the payer, it typically takes anywhere from five to 10 days for them to get their money back.
What happens to money refunded to a closed bank account?
A few different scenarios can happen if money is refunded to a closed bank account. The bank to simply decline the transaction or to send the funds back to the payer. Other options include issuing a paper check to the payee or possibly holding onto the funds and giving the payee the option to reopen their closed account.
Photo credit: iStock/MissTuni
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circ*mstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption. SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit. Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
SOBK0622012
As a seasoned financial expert with a comprehensive understanding of banking and personal finance, I can attest to the intricacies discussed in the provided article by Jacqueline DeMarco on SoFi Learn. The article delves into the potential complications arising from direct deposits being sent to closed bank accounts, shedding light on the various scenarios and solutions associated with this common issue.
The key concepts discussed in the article are as follows:
-
Closed Account Definition:
- A closed account refers to an account that has been deactivated or terminated, rendering it unavailable for deposits and withdrawals.
- Closure can be initiated by the account holder, a custodian, or the banking institution.
-
Reasons for Bank Account Closure:
- Accounts may be closed due to a negative balance, failure to replenish the account, or non-payment of overdraft fees.
- Suspicious or illegitimate activity may also lead to account closure.
-
Direct Deposit to Closed Account:
- The article outlines what happens when a direct deposit is sent to a closed account.
- Most banks have a standard process, including returning the funds to the sender or holding onto the funds for a period.
-
Bank's Actions:
- The bank may hold the funds and give the account holder an opportunity to reopen the closed account.
- Issuing a paper check to the account holder is another option.
-
Reopening Closed Accounts:
- Reopening a closed account is possible in specific scenarios, such as with dormant accounts or frozen accounts.
- Communication with the financial institution is crucial in resolving these situations.
-
Timeline for Resolution:
- The timeline for resolving the issue can vary, ranging from five to 10 days for funds to be returned to the sender.
-
Preventive Measures:
- The article emphasizes the importance of double-checking account numbers on direct deposit forms to avoid misdirected deposits.
- It recommends canceling or altering direct deposits before closing a bank account to prevent issues.
-
Communication and Resolution:
- In case of a direct deposit sent to a closed account, the article advises contacting the bank promptly to resolve the issue.
- The bank's specific processes for handling such situations may vary.
-
FAQs and Additional Information:
- The article includes frequently asked questions, addressing concerns such as the possibility of reopening a closed account through a direct deposit.
- Information about SoFi's banking services and related offers is also provided.
In conclusion, the article serves as a valuable resource for individuals navigating financial challenges, offering insights into the potential pitfalls associated with closed accounts and misdirected direct deposits. It encourages proactive measures to mitigate such issues and provides clarity on the resolution process.
