What Is a Restricted Bank Account?

A restricted bank account places limits on the account's transactions.
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A restricted bank account limits who has access to using it and what transactions can be performed. Bank accounts can be restricted by banks, government agencies, the courts, businesses and nonprofits that own the accounts – and even you.


Understanding "restricted account" meaning and how these accounts work will help you decide if you want to set one up or use one correctly when others have placed limits on it.

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Consider Also​: How to Open a Bank Account With Restricted Use Options


Restricted Account Meaning

A bank account can be restricted in a variety of ways. A bank might limit how many transactions you can make, including making withdrawals, writing checks and making deposits. Businesses and nonprofits might restrict who can use their accounts or what the money is used for.


Consider Also​: How to Open a Checking Account With No Deposit

Who Places the Restrictions?

Banks can place restrictions, including a temporary freeze or placing longer restrictions on it. If you regularly overdraw your account and/or bounce checks, the bank might restrict you from making any more transactions until you bring your balance to zero. The bank might then require you maintain a minimum balance and only allow you to make X number of transactions per month.


Businesses and nonprofits can place restrictions. Some organizations help prevent fraud by limiting who can sign checks, for example. They might require two signatures if a check is over a certain amount. For example, a small nonprofit might require that any check over ​$1,000​ be signed by the organization's treasurer and one other board member.


The IRS might restrict your funds if you owe money or are going through an audit. After the IRS takes its money out of the account, it will lift the restrictions.

Court Restricted Bank Accounts

The courts might restrict your bank account while a trial is going on that might require you to pay damages, while a government agency might contact the bank and have it restrict your access to funds while the agency conducts investigations.


When minors receive money from an inheritance, work or a legal judgment, the courts might set up a restricted account to hold the funds until a guardian is appointed. After that happens, the account will probably still have restrictions on it to prevent embezzlement by the guardian.

Typically, when the guardian wants to distribute funds from the account, she would ask the judge, getting a court order to have the bank release the funds. The court would tell the bank the recipient and the amount.


Consider Also​: Banks That Open Checking Accounts for Kids

What Are the Benefits?

Each person or group who restricts a bank account has their own reason, but it's usually tied to preventing misuse of the funds. Parents might want to set up a small family checking account to teach their children how to make deposits and write checks. They would restrict this account so that the kids couldn't make errors that could result in a large financial hit to the family.


Individuals, businesses and nonprofits can also restrict bank accounts so that the funds are only available for certain functions. For example, a nonprofit might set up a checking account that can only be used for depositing scholarship donations and writing scholarship checks.

After someone dies, his or her estate might set up a temporary bank account until the person's assets are distributed. For example, if a relative dies and you are going to sell her house, you might need to put ​$10,000​ worth of renovations into it. You can set up and use a restricted bank account to handle these transactions, as well as any legal, filing and other fees. A business might set up a restricted account to be used by a team working on a large project.


How to Set One Up

If you'd like to set up a restricted bank account, for example, a Chase account that's restricted, you should call your bank and ask what the steps are, and then go into a branch to go over the details once more and sign the required documents.


You might be able to do this online, but it might be quicker to do it in person. For example, depending on the restrictions you place on the account, such as who can write checks, you will need to fill out and sign signature cards.