If you have ever deposited a check into your bank you may have noticed that, in most cases, the money doesn’t immediately arrive in your account. This can certainly be a frustrating experience, especially if you need access to the money quickly. Let’s take a look at how checks work and why the banks hold them for so long.
Why do banks hold checks?
Checks were invented so that people did not have to carry large amounts of gold or silver. Basically a check is a document that directs for a payment to be made, to a individual or company, from the bank account of the individual/company who wrote the check. Once the check is deposited the bank must present it to the bank from which it was drawn (the bank of the individual/company that wrote the check). The issuing bank then pays the money into the account where the check was deposited.
The above process is mostly done electronically today, but banks still hold most checks while they are being processed. The most common reasons to hold a check today is so that the bank can ensure it is not a fraudulent check and that the bank account of the check writer has enough money to cover the transaction. Checks can also be held if an account has been subject to suspicious activity or if you are depositing a very large amount. The clearing period for a check may be delayed by weekends, public holidays and any other time the bank is closed for business. In most jurisdictions there are laws that state the maximum time that a check can be held, but it is still important to check the specific policy of your bank.
Did you know?
Banks process local checks faster than non- local checks. A non-local check is one that comes from a bank that operates outside the check-processing region of the local bank.
Even though many checks are held to ensure they are valid, there are still times when a check is later found to be a fraud or from an account with insufficient funds. In this situation the amount is taken from the account it was deposited into.