Can a Bank Take Money From Your Account Without Your Permission?

Yes, contrary to what you might think, a bank can take money out of your checking account, even if you don't authorize it. It's called a "right to offset" and it typically happens in one situation: When you owe your bank money on a loan.

When can a bank take money out of your account?

The only time a bank can withdraw money without your permission is if you've defaulted on one of its loan products (such as a car loan) and you also have a checking account, savings account, or certificate of deposit (CD) with the same institution.

The technical term for this is the "right to offset." Basically, this gives financial institutions the right to apply funding from your checking account or CD against outstanding balances. The account and loan must be with the same bank for the right to offset to be legal. A bank cannot seize funding from a checking account that isn't theirs.

For instance, let's say someone has $4,500 in a checking account with an institution we'll refer to as "Bank A." This person also owes $2,500 on a car loan through Bank A. After failing to pay the minimum balance for 90 days, Bank A sets off the debt by taking $2,500 from the checking account. The checking account balance is reduced to $2,000 and Bank A considers the debt satisfied.

But now let's say this same person doesn't have a car loan through Bank A but instead through a different institution, "Bank B." In this case, Bank B cannot take funding from the Bank A checking account; they would have to go through a debt collector if the person continued to leave the balance unpaid.

What debts fall under the right to offset?

Personal loans, car loans, and mortgages can all fall under a bank's right to offset. One notable exception is credit cards: the Federal Reserve Board prohibits banks from taking money from your account to satisfy overdue credit card debts.

How much money can banks take?

Each state has different laws that bar banks from dropping the funds in your checking or saving accounts below a certain threshold. For instance, California law prohibits banks from dropping your checking account balance below $1,000. Check your state laws to understand how much banks can legally take.

Can a bank take money from your retirement accounts?

No, banks typically can't seize money from your 401(k) or IRA account, even if they are the account provider. Often they can only take money from checking accounts, savings accounts, and CDs.

Can you prevent a bank from taking money from your accounts?

If you signed a deposit agreement that included a right to offset clause, then you cannot legally prevent a bank from seizing funds for unpaid balances.

That said, most banks and credit unions are willing to work with you on your debts. Often, banks will only execute their right to offset as a last resort -- that is, when you're unresponsive to and ignoring phone calls. If you need the money in your bank account for some other purpose -- to pay rent, for instance -- talk to your bank directly and work out a debt repayment plan. Most banks will be willing to work with you -- you just have to show that you're also willing to work with them.

If your bank isn't cooperative, you could try to reduce how much you owe by transferring your debt to a 0% APR credit card. These cards come with an introductory period of zero interest, which can help you pay down the principal. And if you get the credit card from a financial institution that isn't your bank, you could avoid the right to offset altogether.