Frozen Account

A frozen account is a bank account in which the bank blocks certain transactions. Accounts can be frozen for various reasons and are often done by legal compulsion or at the bank's discretion. It is temporary and can be reversed once the account holder fulfills certain conditions. 

A frozen bank account meaning some actions like cash withdrawal or transfer from the account, is restricted due to payment defaults by the individual, suspicious account activity, or an illegal act by the account holder. However, it is possible to deposit or transfer money into the account.

• Frozen accounts at banks are investment accounts in which certain activities like debit transactions cannot occur. But it is possible to add money to the account.
• Banks can freeze accounts due to the account holder's shortcomings or any suspicious activity the bank identifies with the account.
• These accounts are a temporary course of action, and they can be unfrozen mostly by following the bank's protocol. Also, there is no set period for keeping an account frozen.

Frozen accounts at banks can mean that a person will not be able to withdraw money from the account nor make any bank transfers. These can be very inconvenient for the account holders. However, in a debit frozen account, there will be no restriction on credit transactions, and the individual will still be able to receive their salary and social security benefits. 

Nevertheless, freezing accounts is mostly done by considering the best interests of everyone, i.e., if a person doesn't pay the money they owe to a creditor, justice should be served. Thus, freezing the account and pushing the account holder to make the payment towards the creditor is justified. 

Similarly, if the bank freezes the account due to suspicious transactions or activity, it is done to secure the account holder's interests. Also, unfreezing accounts can be a very simple process, other than in extreme situations involving the government or the court. 

Further, it is important to note that the bank can freeze investment accounts too. For example, suppose if an investor commits any fraudulent or forbidden activity as specified by the United States Securities and Exchange Commission (SEC), or if the person is freeriding, that is, buying and selling stocks before paying the money, the investment account is likely to be frozen.

Consider the following frozen bank account examples to understand it better:

Example #1 

Suppose John owes $3000 to the bank and the payment of the interest on loan was overdue for two months. The bank froze his account as he failed to make timely payments. Consequently, John was unable to use the money in his accounting statement. As soon as the bank froze the account, it informed him that he would be able to unfreeze his account once he paid the total sum of $3000 plus the interest on two months which was overdue.

Example #2

Following a financial scandal and allegations of fraud in Zhengzhou city of China, many people's bank accounts in the city's four rural banks were frozen by the government. The people had deposited in these banks owing to the high-interest rates. When the people demanded their money, there was a clash between the authorities and the people. This led to widespread protests in the city. This is a classic example of bank accounts frozen by government intervention.

Usually, banks resort to freezing accounts due to the non-performance of legal obligations by the account holder. Sometimes, it is legally enforced, and at other times, it is imposed by the bank. The following are the reasons why banks can freeze accounts:

#1 - Failure to repay debt 

This is one of the main reasons why banks freeze people's accounts. For example, when a person owes a large amount of money to a creditor, the account is blocked, and the person will not be able to use the money in the account.

#2 - Suspicious activity 

This is another reason to freeze accounts. For example, suppose a bank notices a large amount of money being transacted to a previously unrelated party; the bank freezes the account until the account holder confirms that they acted. Again, this is done by considering the best interest of the customer. Also, account holders can request the banks to freeze their account in case of lost credit/debit cards or some fraudulent third-party using the account.

#3 - Non-payment of money owed to the government 

Sometimes, the individual might default on paying government fines or taxes to the IRS. In such cases, the government orders the account to be frozen.

#4 - Illegal actions performed by the individual

In some extreme cases, an individual may have a criminal background. Therefore, blocking such an account until the person is proven innocent can prevent them from enjoying the privileges available to an ordinary citizen.

#5 - Death of the account holder 

This is another case where banks can freeze accounts. For example, when an individual passes away without a direct inheritor, the account is frozen until a legal heir appears.

Mostly, there is no specified period for keeping an account frozen. Hence, banks will be ready to unfreeze an account when the individual follows the prescribed procedure and satisfies certain conditions mandated by the bank. Often, this depends on the reason behind freezing the account.

For example, if the account was frozen due to a payment overdue by the individual, just making the payments will be sufficient. On the other hand, suppose the bank froze the account owing to suspicious activity; an authentic and satisfactory confirmation from the account holder will be enough.

Also, if the bank froze the account due to a court order, there will be no unfreezing until the court says so. That is, an account frozen based on an individual's criminal background can only be unfrozen when they are proven innocent. 

This article has been a guide to What is Frozen Account. Here, we explain its meaning with reasons and examples and how to unfreeze it. You can learn more about it from the following articles -

• Escheatment
• Bank Deposit
• Dormant Account