better banking

Stopping and freezing accounts

03 May 2013

If you instruct your bank to make a payment, the bank is generally legally obliged to carry out your instructions. In some circumstances however, your bank can suspend an account and refuse your instructions.


When can my bank suspend my account?

A bank’s power to suspend your account in certain circumstances will be set out in its standard terms and conditions, which you can get from branches or view online via your bank’s website.

Information about suspending accounts is also in the Code of Banking Practice which sets out minimum standards of good banking practice New Zealand banks agree to. The Code of Banking Practice says banks may suspend an account’s operation for various reasons, including:

  • complying with a court order
  • you have been declared bankrupt
  • there are insufficient funds in your account
  • the bank has been notified of a dispute over either funds ownership or account operation
  • to protect one or all parties to the accounts, the bank, or a third party which has reasonably claimed an interest in the account.

Sometimes a bank may only suspend a certain sum of money in your account, such as when a court order applies to a specific sum less than the total balance of your account.

A bank may also place a partial suspension on your account and allow some payments to be made - such as when a business account is suspended but the bank allows wages payments to employees.


Does my bank have to tell me before suspending my accounts?

Your bank does not have to tell you before suspending your account. This is mainly to protect funds as telling the account holder in advance that the account will be suspended gives them the opportunity to withdraw money.

Your bank must tell you after it has suspended your account. The Code of Banking Practice says banks will advise all account holders as soon as possible when an account has been suspended. This means where there is more than one account holder, the bank must tell each one individually. It cannot rely on one account holder to tell the other(s).


What can I do if my account has been suspended?

Firstly, find out from your bank why your account has been suspended. You can then decide how to address this.

For example, your account could be suspended because of insufficient funds. In this case you may need to arrange to repay money you owe before the bank will lift the suspension. 

Your account could also be suspended at the request of a third party. This might be where your bank has been notified by someone else about a dispute over the ownership of funds in your account. In these cases it is not the bank’s role to determine the rightful owner of the funds. The suspension will generally remain in place until you can resolve the dispute with the person claiming the funds. Your bank should help you by clearly explaining the process for removing the suspension.

If you have tried to resolve the issue with your bank but are not satisfied with its response you can contact us about making a complaint.


Case study

ABC Sports Club had an account with the bank. Money in the account was contributed by club members, and from fundraising events. Three executive committee members were club account signatories, allowing them to operate it for club purposes.

A dispute arose within the club. Several club members instructed a lawyer to write to the bank asking it to freeze the account as the funds belonged to members.

When the bank received the letter it promptly suspended the account to allow the dispute to be resolved. However, it failed to tell signatories it had suspended the account. Signatories only found out when cheques bounced.

When we investigated the complaint we found under its terms and conditions, the bank was entitled to suspend the club’s accounts, but it had failed to promptly notify account holders. We decided the failure to notify signatories had caused the club inconvenience, and recommended the bank pay it $1,000 compensation.


Download a pdf version of this quick guide.