Bank accounts are one of the safest places to store money. As long as your bank has FDIC insurance, your deposits are insured up to $250,000 per account holder. Most online accounts also have intense security measures in place to protect your savings against fraud and theft, like smart password requirements and two-factor authentication.
That said, under some circ*mstances, a bank may have the right to withdraw money from your checking account, even if it doesn't obtain your permission in advance. It's called a "right of offset," and it typically occurs when you borrow money and bank at the same institution. Let's take a look at when a right to offset might occur and what you can do to prevent it.
When can a bank take money out of your account without your permission?
Contrary to what you might think, a bank could legally withdraw money from your deposit accounts (like a checking or high-yield savings account) if you've defaulted on one of its loan products, like a mortgage or car loan.
Again, the technical term for this is the "right of offset" or "right to offset." Under this right, which can be found in your account's deposit agreement, your bank can subtract money from any deposit accounts to cover outstanding balances. The account and unpaid balance must be with the same bank for the right to offset to be legal. A bank cannot take funding from an account that isn't theirs.
Oddly enough, banks cannot seize funding for unpaid balances on credit cards. Consumers are protected from this under The Federal Reserve Board's Regulation Z Section 1026.12, which forbids financial institutions from withdrawing funds to cover outstanding credit card balances. Banks also won't seize money from retirement accounts, like a 401(k) or IRA. They can only take funding from deposit accounts, such as a checking account, savings account, money market account, or certificate of deposit (CD). This could be an account that you own solely, or a joint account that you share with someone else.
How to stop your bank from taking money without permission
To be sure, if you can find right of offset language in the deposit agreements that you signed, there's not much you can do to stop your bank from legally withdrawing money without your permission.
That said, if the right of offset bothers you, you could bank and borrow money from separate institutions. You might hold your checking and savings accounts at one bank, for instance, while getting car loans or mortgages from another. In this way, your lender cannot legally seize your money if you fall behind on payments.
Of course, you could also avoid this by keeping up with your loan and mortgage payments. So long as you don't give your bank reason to dip into your checking account, you'll never have to face an unexpected withdrawal. If you do start falling behind on payments, however, it might be wise to reach out to your bank and see if you can set up a debt repayment plan. Many banks are willing to work with you, especially if you're undergoing financial hardship resulting from a job loss, death of spouse, injury, or other unexpected event.
You might even be able to transfer your unpaid debts to a balance transfer credit card with a 0% intro period. This could work with personal loans whose payments you're getting behind on, though be careful -- not all 0% APR credit cards will allow you to transfer loans.
To be clear, a bank won't withdraw funds without your permission for any other purpose than to cover outstanding debts. Take a look at your deposit agreement to see if your bank has a right to offset and don't hesitate to report any unauthorized withdrawals, as it could be a sign of fraud.
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FAQs
Banks can take money from your checking account, savings accounts, and CDs when you owe the same bank money on loans. This is called the "right to offset." Banks will typically seize money from your accounts when you're behind on loan payments and not working with them to repay the debt.
Can a bank take out money from your account without permission? ›
No, banks cannot legally take money from your account without permission. However, they can withdraw funds for specific reasons, like overdraft fees, unpaid loans or debts (under the right of offset), suspected fraudulent activity, or legal judgments.
Under what circ*mstances can a bank take your money? ›
Generally, a bank may take money from your deposit account to make a payment on a separate debt that you owe to the bank, such as a car loan, if you are not paying that loan on time and the terms of your contract(s) with the bank allow it. This is called the right of offset.
Can a company take money out of your account without permission? ›
Unauthorized Direct Debits: If you have provided your bank account details to a company or individual, they may initiate direct debits without your explicit permission. While this practice is illegal, it can occur if the recipient abuses their access to your account information.
Can debt collectors take money from your bank account without permission? ›
Collectors Taking Money from Your Wages, Bank Account, or Benefits. Debt collectors can only take money from your paycheck, bank account, or benefits—which is called garnishment—if they have already sued you and a court entered a judgment against you for the amount of money you owe.
What is taking money without permission? ›
Unauthorized charges refer to any purchases, withdrawals, or transfers made on your account without your permission. These charges can occur due to various reasons, such as identity theft, fraudulent transactions, or even mistakes made by merchants or financial institutions.
What is it called when someone takes money from your account without permission? ›
Financial fraud happens when someone deprives you of your money, capital, or otherwise harms your financial health through deceptive, misleading, or other illegal practices. This can be done through a variety of methods such as identity theft or investment fraud.
Can banks legally confiscate your money? ›
Banks can take money from your checking account, savings accounts, and CDs when you owe the same bank money on loans. This is called the "right to offset." Banks will typically seize money from your accounts when you're behind on loan payments and not working with them to repay the debt.
What is the common law right of offset? ›
Offset is the general right of one party to recover a debt owed by another through a deduction from monies owed by the first party to the second.
Can a bank refuse to give me my money? ›
Yes. Your bank may hold the funds according to its funds availability policy.
Call and write the company
Call the company and tell them you are taking away your permission for the company to take automatic payments out of your bank account. The company's customer service should be able to help you, and there might be an online form you can use. Then, follow up by writing a letter or an e-mail.
Can banks take your money in a depression? ›
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Can banks find out who used your card? ›
Can You Track Someone Who Used Your Credit Card Online? No. However, if you report the fraud in a timely manner, the bank or card issuer will open an investigation. Banks have a system for investigating credit card fraud, including some standard procedures.
What states don't allow bank garnishments? ›
What States Prohibit Bank Garnishment? Bank garnishment is legal in all 50 states. However, four states prohibit wage garnishment for consumer debts. According to Debt.org, those states are Texas, South Carolina, Pennsylvania, and North Carolina.
What type of bank account cannot be garnished? ›
Some sources of income are considered protected in account garnishment, including: Social Security, and other government benefits or payments. Funds received for child support or alimony (spousal support) Workers' compensation payments.
How long before a debt becomes uncollectible? ›
Can a bank close your account and take your money? ›
Of course, the bank must return any remaining funds in your account but may hold on to them to cover any negative balance or fees. In some cases, the bank may hold the funds if your account is flagged for suspicious activities, which is increasingly common.
Can banks refuse to give you your money? ›
Yes. Your bank may hold the funds according to its funds availability policy. Or it may have placed an exception hold on the deposit. If the bank has placed a hold on the deposit, the bank generally should provide you with […]
Can I stop a company from taking money from my bank account? ›
Call the company and tell them you are taking away your permission for the company to take automatic payments out of your bank account. The company's customer service should be able to help you, and there might be an online form you can use. Then, follow up by writing a letter or an e-mail.
