A checking account hold serves to let the bank know for sure that a deposit is legitimate.
In October of 2004 Congress passed what is called Check21 legislation that allows banks to process copies of your checks, not the checks themselves. This is intended to speed up the process of clearing payments out of one account and into another, but until it is fully implemented it creates a lot of uncertainty as to the length of time a check is processed.
There is also a tremendous amount of fraud associated with checks in the banking system. Forged checks, stolen checks and forged signatures, and “float” schemes where checks are written and then the funds are unavailable create hundreds of millions of dollars of losses for banks and consumers every year.
One of the ways a bank will attempt to limit losses due to checking fraud is by instituting check hold policies. Instead of immediately crediting your account, the bank “holds” your check until they are absolutely sure that it has cleared at the other end.
These hold periods are usually just a couple of days, but in some instances may last up to a week depending upon the circumstances. These policies have been updated in recent years as banks attempt to stem losses from fraud, and some customers are surprised to find that their funds are not available immediately.
Check with your bank to find out what their specific policies are. If you find your account overdrawn on Wednesday because a check you deposited on Monday will be held and unavailable until Friday, the bank may also charge you a fee for being overdrawn.
Banks will differ greatly on hold times, since the Federal Reserve Board sets the maximum days various types of checks can be help but does not set a minimum number of days. For instance; rules governing large out of state deposits allow the local bank to place a hold the availability of these funds for up to 11 business days.
Your check deposits may be subject to a hold based on a number of factors.
One may be the kind and location of the paying bank. If it is an out of state or distant bank, or a smaller bank that doesn’t yet participate in Check21 type processing, your deposit may be held.
Deposits made at an ATM may be subject to a hold.
The check cannot for any reason be verified at the financial institution from which it is drawn.
A check is being redeposited that was return unpaid.
You have overdrawn your account repeatedly in the last six months.
Checks deposited on a given day total more than $5,000, or a check may be from a foreign bank.
There is an emergency, such as failure of communication or computer equipment.
Your account has been recently opened. Because fraud often involves the opening of a new account, checks are sometimes held for as long as a week until a customer develops a track record. This period may last thirty to ninety days.
There are many reasons why an individual bank will hold deposited checks. When you open an account ask for the specific circumstances so you won’t be surprised.
If checks are held some banks will tell you how long they will be held at the time of the deposit. Some banks even supply a deposit receipt that tells you the exact date when the check will clear.
Typically, your bank will credit your account to show the deposited funds as part of your balance. However, you won’t see those dollars in your “available” funds until the hold is lifted. In other words, these funds aren’t available for you to take as cash, and a check written against those funds would bounce.