Although depositing a check is a relatively straightforward process, understanding when your funds are available, and when your check clears, may be a bit more unclear to some. Learning the basics of the depositing process (and the rules and regulations that govern it), may prevent you from bouncing a check due to insufficient funds, and help you understand what you should do should you ever encounter a fraudulent check.
Rules Governing Deposits and the Availability of Funds
Federal laws, specifically Federal Regulation CC, set rules detailing the maximum amount of time that a check, or other forms of deposited funds, may remain in a hold status. This hold allows your financial institution time to verify that the payer (or the individual who wrote you the check), has sufficient funds to cover the entire amount listed on the check. For a majority of personal checks, financial institutions typically make the first $200 available to you within a day. The remainder is placed in a hold status for up to several additional days to allow verification of funds.
Despite these federally-mandated timelines, there are exceptions which may allow a financial institution to extend the hold, such as checks for:
- Newly-established accounts
- A deposit over $5,000
- Customers with repeated overdrafts of a deposit account
- Customers with a history of fraudulent check cashing
- Deposited checks which previously bounced
- Emergency situations which prevent the timely release of funds (natural disasters, computer network outages and more)
The Process of Depositing a Check
In simple terms, when you deposit a check, the financial institution that receives the check scans a copy and sends it—electronically—for verification. This scanned copy either arrives at the payer’s financial institution, or a clearinghouse (an intermediary that helps verify that the funds exist to cover the amount shown on the check). If the funds are available, and there are no problems with the check, such as a stop-payment action or an accusation of fraud, the money transfers into your account, as the payee. Simple enough, right? But how do you know when you’ll have access to these funds?
When Will Your Check Clear?
As mentioned above, the first $200 of a deposited check is usually made available to you within one business day. What happens to the remainder of the funds? If you deposited a $500 check, for example, and gained access to the first $200 within a business day, when would you be able to spend the remaining $300? Based on the average times involved in verifying the presence of funds in a payer’s account, you should have access to the money within two to three business days.
Some financial institutions allow members to spend the money they deposit with little or no delay by setting internal deposit policies that are more lenient than federal law requires. Understand, though, that just because you see a positive credit in your checking account, this does not necessarily mean a check fully “cleared.” Although some financial institutions may permit you to access the funds from deposited checks—regardless of amount—immediately, it is often wise to wait.
What Happens in Cases Where a Check Bounces?
If you spend the funds from a deposited check, and it later bounces (i.e., is returned for insufficient funds), you’ll be on the hook to replace the money and, perhaps, pay a wide range of fees, such ase:
- Overdraft fees
- Insufficient Funds fees for each purchase made while your account had a negative balance
- Returned Check fees from vendors if a check you wrote, based on the assumption you had sufficient funds in your account, bounces
Unfortunately, this can happen even after a check “clears” and appears as part of your accounts “available balance,” (the amount of money in your account available for your use). To avoid frustration when you deposit a check at your financial institution, try to confirm the date the funds will be available. Ask a teller, call customer service or check online for a copy of a basic account disclosure which discusses your financial institution’s deposit policies in greater detail. When in doubt, wait. Plan ahead to ensure you do not overdraw your account.
It also helps to keep an eye on your account balances and protect yourself from fraud by refusing to accept post-dated personal checks or checks from individuals you do not know. This process is especially crucial if you plan to sell a big-ticket item, such as a vehicle, to a private party. Alternatively, you can ask for cash, a wire transfer, a cashier’s check, money order or even take advantage of a wide range of new online payment tools and applications. (Beware, though, that each of these forms of payment also presents risks for fraud.)
Ultimately, understanding the basic regulations and processes involved with depositing a check may help save you significant frustration and keep you from overdrafting your account in the future.