Bank accounts are one of the safest places to store money. As long as your bank has FDIC insurance, your deposits are insured up to $250,000 per account holder.
That said, under some circumstances, a bank may have the right to withdraw money from your checking account, even if it doesn't obtain your permission in advance. It typically occurs when you borrow money and bank at the same institution.
Let's take a look at when a right to offset might occur and what you can do to prevent it.
When can a bank take money out of your account without your permission?
Contrary to what you might think, a bank could legally withdraw money from your deposit accounts (like a checking or high-yield savings account) if you've defaulted on one of its loan products, like a mortgage or car loan.
The technical term for this is the "right of offset" or "right to offset." Under this right, which can be found in your account's deposit agreement, your bank can subtract money from any deposit accounts to cover outstanding balances.
The account and unpaid balance must be with the same bank for the right to offset to be legal. A bank cannot take funding from an account that isn't theirs.
Oddly enough, banks cannot seize funding for unpaid balances on credit cards. Consumers are protected from this under The Federal Reserve Board's Regulation Z Section 1026.12, which forbids financial institutions from withdrawing funds to cover outstanding credit card balances.
Banks also won't seize money from retirement accounts, like a 401(k) or IRA. They can only take funding from deposit accounts, such as a checking account, savings account, money market account, or certificate of deposit (CD). This could be an account that you own solely, or a joint account that you share with someone else.
