In your dealings with the banks or financial institutions that handle your accounts, such as savings, checking, or money market accounts, you may have encountered a hold on a check that you deposited into your account. One, two, three day holds or even holds of up to six or seven business days are not unusual, as the bank waits for the check to clear before issuing the money to you. But what about withdrawals? If you walk up to a teller window and demand the entirety of your account in cash, is there any reason why the bank would not meet your demand? Do banks have the right to delay withdrawals?
The answer, surprisingly, is yes: under certain circumstances, the bank is allowed to delay the withdrawal of your funds for up to 60 days, or even longer in the case of certain types of accounts, such as certificates of deposit. In most cases, your bank will not exercise this right. The main circumstance under which a bank is likely to delay withdrawals is if the bank fails and has been taken over by the FDIC. The FDIC insures your deposits, so you will get the money back eventually. But legally, the bank is not required to turn over your money on demand once the FDIC has stepped into the picture.
The reason behind this legality goes back to the Great Depression and even earlier, when bank panics were a relatively common occurrence. When drops in the stock market or high unemployment made investors panic about the safety of their money, a “bank run” would generally ensue, as customers would literally run into the banks to withdraw their money. Bank runs of this nature had the effect of making the economy even worse, because reduced liquidity can really cripple banks that are already suffering in a poor economy. Naturally, federal regulators were looking for ways to discourage bank runs and keep the economy from spiraling even further into recession.
One of the ways the banks discourage bank runs was by including a clause in depositors’ accounts which allowed them to exercise the right to delay withdrawals, if they choose to do so. Check your terms of service and see what conditions apply to your account.