The Cypriot Central Bank said the decision was taken to ensure the "smooth functioning of the whole banking system."
The Bank of Cyprus and Laiki bank are facing radical restructuring under the terms of the 10 billion euro rescue plan.
In a televised address, President Nicos Anastasiades announced that transactions will be limited temporarily as banks reopen - to avoid bank runs.
"Cyprus was one step away from financial collapse, " he said.
"Our choices were not easy and the environment was not ideal but after tough negotiations, with persistence and also a sense of responsibility, we have reached a result that ensures this country's future."
Cyprus may have avoided a euro exit but the cost to the economy is yet to be calculated.
In the US, stocks fell when Eurogroup President Jeroen Dijsselbloem said that the Cyprus rescue would act as a model for the eurozone.
He later clarified that Cyprus was a unique case.
Source: Euronews
