What happens if direct deposit goes to closed account

When you open a new bank account, either a savings or checking account, you have the option of allowing direct deposits to be automatically posted to your account on pre-determined payment dates. Using the bank’s routing number and your account number, you can designate that your employer or other company that participates in offering direct deposits transfer the earnings directly into your account. The funds are usually immediately available for your use in the account on the next business day after the bank receives the money. Any direct deposit earnings sent to closed accounts will be returned to the sender.

TL;DR (Too Long; Didn't Read)

Each bank has their own policy when it comes to returning deposits that were made to a closed account; however, the time frame tends to range from five to 10 days.

Closing a Bank Account

A bank account may be closed by the account holder when there is a zero balance in the account. By contacting the financial institution and completing a written request authorizing the bank to close the account, the bank will immediately close the account if there are no unresolved transactions. Once the account is closed, the bank’s computer system will not process any further transactions for the account.

If an account has repeated overdrafts, a balance in the negative for too long, or other signs of mismanagement, the bank has the right to close the account.

Outstanding Bank Transactions

Some banks keep accounts active when there are unresolved bank transactions, even if you have authorized the bank to close the account. With most financial institutions, you may not voluntarily close an account until you have paid the outstanding balances and returned your account to zero balance. If the account is still active due to negative balances and other unresolved transactions, the bank will transfer a certain amount of the direct deposit funds to the account to clear the account.

Rejected Bank Deposits

If the account closes before you can cancel the transaction, the money will get sent to the closed account. Similarly, if your employer processes the payroll transaction before you can intervene, the funds may go to the closed account.The financial institution is required to return the funds to the sender, which may be your employer or other income source, with correspondence indicating that the account is closed.

The company will not issue a check or forward the money to another account until the direct deposit funds are returned. The bank’s policy determines the time frame during which the funds must be sent back to the sender, which may range from five to seven days or seven to 10 days. The financial institution may also send you a statement explaining the transaction. With most financial institutions, this process is usually expedited in a timely manner when you have satisfied all outstanding balances.

Direct Deposit Cancellation

Many employers recommend that you cancel your direct deposit transactions prior to canceling a bank account. A company may process payroll transactions several days before the actual date you’re scheduled to receive the money. Any direct deposit cancellations should be forwarded to the company as early as possible to avoid a delay in receiving your earnings. Once these transactions are processed, depending on company policies, you may not receive the funds until the next payroll date if your bank account has been closed.

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References

• Frequently Asked Questions Regarding COVID-19
• TD Bank: Closed Account That Was Sent a Direct Deposit
• Willamette University: Frequently Asked Questions and Answers

Writer Bio

Marie Huntington has been a legal and business writer since 2002 with articles appearing on various websites. She also provides travel-related content online and holds a Juris Doctor from Thomas Cooley Law School.

If a direct deposit goes to a bank account that is closed, the money will be bounced back. The receipt bank will return the money to the sender’s bank with a communication that the account has been closed.

If you had a bank account that later you closed for some reasons. And in case your employer or any other source deposits money to that account.

Then you will not be able to access that money because your bank account has been closed. Even if you contact your bank the answer you will get is “The account can’t be accessed as it is closed”.

Then what next? Will you lose your money?

No, there is no need to worry about it of course the things will take time to get sorted. But you will not be losing any of your money.

As I have mentioned in the first paragraph the direct deposit will fail. The money will be sent back to the sender’s bank account.

This means if your employer has done the direct deposit of your earnings. Then your employer will get the money back to the account from which the deposit was done.

In most cases, this is an automated process that is taken care of by the bank’s automatic systems or computers. There is very little human interference in this.

But here you should also make a note to yourself that the fault is completely yours. You have to update your employer or any other source of income with your latest bank account number.

So you can not expect things to go very smoothly in this case. The person who has sent you the money will not pay you until he or she receives the money back from your closed bank account.

How Long Can the Bank Hold the Deposit?

Every bank has its own set of policy which it follows. So you can expect anywhere around 7 to 10 working days. (returning the deposit that is made into a closed account)

Conclusion

There is nothing much which you can do here. You will have to wait and contact your old bank and ask them how many working days the system needs to send back the money to your depositor’s account. At the same time also inform your employer about what has happened. But one thing is sure that you will not lose money if your bank account is closed.

How long does it take for money to bounce back from a closed account?

Will a direct deposit reopen a closed account?