Opening a bank account and making deposits doesn’t necessarily mean those funds are immediately available for use. When you deposit a check into a bank a holding period is usually placed on the funds. This waiting period is the length of time the bank will hold the check or checks in order to clear the funds for use. Often the time is used to determine whether or not the funds will be available for use. Federal Regulation CC establishes when deposits and the collection of checks become available to the customer. This regulation sets up availability schedules under which banks must make funds deposited into transaction accounts available for customer withdrawals. These regulations guide the maximum amount of time banks can hold deposits before making them available to your account.
In 1987, Congress passed the Expedited Funds Availability Act, which limited the length of time that a financial institution or bank may hold the funds from a deposited check. Federal Regulation CC implements the Expedited Funds Availability Act and governs the availability of funds and the collection and return of checks. The law was designed to protect banking institution from bad deposits and checks with uncollected funds while serving the needs of customers or depositors. Even when a bank is able to clear the funds for a check in a shorter time frame than outlined in the federal regulations, it is not obligated to release the funds to your account. The bank can still clear your deposit expeditiously, not credit it to your account until the maximum allotted time, and reap the profit by using your money during this time period. While all regulated banks are subject to the same maximum hold periods established by the law and the rules issued by the Fed, each bank may make deposits available sooner.
All financial institutions must disclose their hold policies to all account holders, and make the policy available in written form upon request by any customer. The terms and conditions of the hold policies must also be provided at the time of opening of all new accounts. Additional disclosures are required by banks on deposit slips, at ATMs, and when the policy is changed in any way.
Regulation CC states when deposits of various types must be made available to bank customers, measured in business days following the banking day on which the deposit is made. A banking day is any business day when the bank is open for substantially all of its banking activities, up to the bank’s cut-off hour for that day. Banking business days are identified as Mondays through Fridays except for most federal holidays.
Under the regulations for bank holds, the first category for deposit funds availability covers the types of deposits that must be made available on the first business day following the banking day a customers deposit, including;
Cash deposited in person to one of the bank employees.
Electronic payments received by the financial institution for deposit in an account.
U.S. Treasury checks deposited in an account held by a payee on the check.
U.S. Postal Service money orders.
Federal Reserve Bank and Federal Home Loan Bank checks.
State or local government checks deposited in person and into an account held by a payee of the check.
Cashier’s checks, certified checks, or teller’s checks deposited in person and into an account held by a payee of the check.
Checks drawn on an account held by the bank institution, referred to as “on-us checks”, deposited in person or at on-premises ATMs or night depositories.
Other deposits that include some checks of types that are not listed above will have the first $100 of non-“next-day” checks must be made available the next day.
If certain deposits wee not made in person, the hold on the funds will be made available by the second business day.
Deposits by cash or check made at an ATM that is not owned by the bank will be made available by the fifth business day.
For checks that are not covered by the above rules, funds generally must be made available in accordance with the next schedule specified in Federal Regulation CC. The regulation schedule for the availability of these funds varies depending on whether the check deposited is considered a local or a non-local check as defined by the Federal Reserve. A check is considered local if the banking institution is located in the same check-processing region as the paying institution. The routing number can determine whether a check is local or non-local.
Funds from local checks must be made available by the second business day following the day of deposit.
A check is considered non-local if the bank is not located in the same check-processing region as the paying institution.
Funds from non-local checks must be made available by the fifth business day following the day of deposit.
Finally, for particular types of deposits, Regulation CC permits financial institutions to make exceptions and delay the funds availability for a reasonable period of time. According to Federal regulation announcements, a “reasonable” time period is generally defined as one additional business day (making the hold a total of two business days) for on-us checks, five additional business days (making the hold a total of seven days) for local checks, and six additional business days (a total of eleven days) for nonlocal checks. Banks have the discretion of imposing longer exception holds, and the depositor may have the burden of proving that they are “reasonable.” Exceptions can include:
Large deposits, which is identified as deposits exceeding $5,000.00. Any amount exceeding $5,000 may be held. Your bank must make the first $5,000 of the deposit available for withdrawal according to their availability policy and the remainder within the reasonable time frames outlined by the Fed.
Redeposited checks may be held unless the check was returned because an endorsement was missing or because the check was postdated.
Deposits to accounts that are repeatedly overdrawn. Repeatedly overdrawn accounts are identified as accounts where on six or more banking days during the previous six months the account had a negative balance, or would have had a negative balance had checks and charges been paid, or on two or more banking days during the previous six months the account balance was negative in the amount of $5,000 or more, or would have been had checks and charges been paid.
If there is reasonable cause to doubt the collectibility of a check. Uncertain collectibility may exist for postdated checks, checks dated more than six months earlier, and checks that the paying institution has said it will not honor. The Fed explains the general criterion for doubting collectibility as “the existence of facts that would cause a well-grounded belief in the mind of a reasonable person” that the check is uncollectible.
Checks deposited during emergency conditions that are beyond the control of your institution.
Deposits into accounts of new customers (open for less than 30 days)
Deposits of cash and electronic payments are not eligible for exception holds regardless of the jurisdiction of the bank.
Understanding the rules may save any headaches caused by lack of available funds and overdrawn accounts. With more consumers using checking accounts for the sole purpose of paying recurring bills and maintaining larger positions in less liquid accounts like CDs or money market accounts, the thorough understanding of these rules has become more crucial.