Most of the time, a bank error is a major headache. Maybe the bank processed your online bill pay on the wrong day, or debited you twice for the same transaction and caused your account to be overdrawn. But how often do you see extra money in your account because there’s a bank error in your favor?
According to Kyla Tennin, a consumer banking consultant, a bank error in your favor is far less common than one that goes against you. “I don’t have statistics on how common bank errors in the customers’ favor might be, but based on professional experience over the years, I believe I saw a 95-5 split,” in the bank’s favor, she said.
Still, they do happen. Just ask the Georgia teen who had $30,000 mistakenly deposited in his account by a distracted teller. He spent the money on a BMW before the bank discovered the error—a dream come true for a car-obsessed teen. Unfortunately, his dream turned into a nightmare.
What is a bank error in your favor?
When a bank makes a mistake in one of its automated or human processes, it results in money being somewhere it shouldn’t be. When money that isn’t yours winds up in your account, it’s a bank error in your favor.
There are a lot of ways this can happen. Sometimes, it’s human error at a branch, as it was in the case of the young man in Georgia. “A bank teller inaccurately keying in information on a customer’s account,” Tennin said, could easily result in an error in your favor.
Even automated processes aren’t infallible. “An electronic system could read a seven in the account number on a deposit slip as a two if the customer’s handwriting is poor, and the deposit is placed in a completely different customer’s account,” Tennin said.
Tennin pointed out that a lot of errors customers blame on the bank may actually be merchant errors. “A merchant is a business a customer shops at and uses a debit or credit card to make a purchase,” she said. “The dollar amount of the purchases are supposed to be confirmed and electronically sent to the customer’s financial institution.”
Occasionally, the merchant enters an inaccurate account number or purchase amount and this results in your purchase being charged to someone else’s card or the wrong amount being deducted from your account.
Tennin said bank errors, either in your favor or the bank’s, rarely happen and are usually corrected before the customer notices. Banking is a highly regulated industry and processes are in place to double- and triple-check transactions.
“Review of accounts is ongoing even after accounts are updated overnight because banks have their own reports, audits, paperwork and filings to construct for regulatory bodies,” Tennin said. “So accuracy is critical.”
Can you keep the money if there’s a bank error?
Even though it feels like you won the lottery when you discover extra money in your account, legally, it’s not yours. Money mistakenly credited to your account by the bank isn’t pulled from thin air—it’s taken from a different account. “Customers are obligated to report bank errors because the situation involves money either ‘stolen’ from another customer or from the bank,” Tennin said.
You should always carefully review your statements as soon as you get them, Tennin said, because you have 30 days to report bank errors involving paper checks and 60 days for those relating to electronic transactions. This is especially important to keep in mind with bank errors that go against you: If you miss the 60-day deadline, you may be responsible for any erroneous charges.
Banks aren’t under any such time limits to recover money mistakenly credited to your account. They don’t need your permission—nor do they even need to notify you in advance—to correct a bank error in your favor. In fact, they can freeze your account without notice to prevent you from withdrawing any money until the error is corrected. Banks can take the money out of your account—or any other account you have at the bank—whenever they discover the error, even if it’s months later.
“Financial institutions are able to do this based on the customer account agreement,” Tennin said. “If the customer doesn’t have enough money in the account the situation occurred in, a ‘right to set off’ could be initiated where the funds are retrieved by accessing another account the customer has at the bank.”
The consequences can be much worse than a frozen account or a withdrawal from a separate account. If you spend the money or withdraw it from the bank, Tennin said the bank can make it difficult for you to open a new account with a different bank. “The bank can place restrictions on systems nationwide to flag the customer’s name and Social Security number,” she said. Once that happens, you’ll have trouble opening an account, obtaining a debit card, or writing checks for years after resolving the matter.
If you don’t cooperate when the bank tries to recover it, the next step might involve law enforcement. “Banks see this as stealing,” Tennin said. Laws vary by state, but you could be charged with theft, receiving stolen property or other serious offense.
That was the case with the Georgia teen who bought the BMW: He got a conviction, 10 years of probation and a court order to repay the money he spent.
What to do if you notice a bank error in your favor
If you discover a large bank error in your favor, immediately let your financial institution know. Leave the money in your account, because you don’t want to be overdrawn when the bank corrects the error. Don’t be tempted to move the money to another account, because that could be perceived as evidence of criminal intent.
When you call the bank, keep it short and simple. Let the representative know there is money in your account and you don’t know where it came from; let the bank handle the investigation from there. It’s possible that extra money isn’t a bank error, but a transfer, refund or deposit you weren’t expecting: One woman called her bank to report a $145 deposit she thought was in error when it was actually a good-driver rebate on her auto insurance premium that she wasn’t expecting.
Tennin said the bank’s process is different depending on how the customer reports the problem; it can either be researched as an error or a potential case of fraud. Once the bank takes the information, they send a report to the claims department based on whether the error is related to a debit card, paper check or deposit.
“Customers are usually told it can take up to 45 days, no matter if the error goes against the bank or against the customer,” Tennin said, “but the bank is interested in getting to the bottom of the situation quickly because of industry and legal accountability.”
Once you notify the bank, you shouldn’t have to do anything else—except leave the money alone. When the bank tracks the source of the error, they’ll deduct it from your account with no action on your part. You’ll usually get a letter describing the bank’s findings and explaining any actions they took to resolve the error.
What not to do
You already know you shouldn’t spend the money, but here are a few examples of other things you definitely must avoid with a bank error in your favor:
- Transfer the money to another account and flee the country. A New Zealand couple discovered the bank had accidentally given them a credit limit one hundred times what they applied for, which amounted to $10 million. They cashed out and tried to outrun the law, but they were ultimately arrested and prosecuted.
- Ignore communications from the bank. A Pennsylvania couple got $120,000 due to a clerical error by a teller. They went on a two-week spending spree and refused to respond to calls and letters from the bank. The bank finally called the police, and the couple was arraigned on charges of theft and receiving stolen property.
- Refuse to cooperate with a repayment plan. An Altoona, Pa., man spent over half of a $280,000 bank error in his favor. The bank offered not to press charges if he accepted a mortgage on his home to repay the money he stole, but he refused. He was sentenced to seven years probation, full restitution and a $100 fine.
There’s no such thing as free money
As Tennin said, the money mistakenly put in your account came from somewhere. If a deposit was erroneously credited to your account, that means someone is waiting for money that never showed up.
Things that seem to be too good to be true usually are, and that’s certainly the case with a bank error in your favor. There’s a reason it’s called an error and not a gift—and someone will eventually discover the mistake. You’re better off doing the right thing as soon as you notice the extra cash so you avoid overdraft fees, a black mark on your bank record, and a potential criminal charge.