You might think of checks as paper documents for payments, but you often make electronic payments out of your checking account with no paper required. Sometimes you pay electronically without even realizing it. Even if you write a check by hand, the bill can be converted to an electronic payment at the cash register, resulting in the funds leaving your account faster than you might have expected.
How Electronic Checks Work
An electronic check is an electronic payment from your checking account processed through the Automated Clearing House, or ACH network system. There are two ways this happens.
Manual Check Entry
When you provide your checking account details (your bank account and routing numbers), a business or service provider can pull funds from your checking account electronically.
Your checking account information appears at the bottom of your paper checks, and you can also get those details online. This payment method is often called an e-check, EFT, or something similar. To provide that information, you often type it online or verbally give it to a phone representative.
Utility companies, insurers, local governments, and other service providers often allow you to set up autopay options directly from your checking account.
You might also write a check the old-fashioned way and be surprised that it gets converted into an electronic check. When merchants have check-reading machines at checkout counters, they quickly read the information from your review for processing your payment. The numbers on the bottom of your checks are printed in a particular font, often with magnetic ink, making it easy for special devices to get the information they need. Checks also can be converted by service providers such as your utility company when you mail a check for payment.
Electronic check conversion is different from substitute checks. Substitute checks are used between banks under the Check 21 law, which allows specific high-quality images of checks to replace traditional paper checks. You may have unknowingly created a substitute check if you have ever used a mobile phone app to take a picture of a paper check to deposit it into your bank account.
Impact of Electronic Checks
Electronic checks allow businesses to process payments quickly. As a consumer, the most important thing to know is that the money may come out of your checking account sooner than you expect. You need to make sure you have enough money available in your account whenever you write a check. In other words, you can no longer rely on float time—the two- or three-day delay that used to pass between submitting a review to a vendor and seeing the funds move out of your account.
To make sure you always have enough money, balance your account regularly and set up alerts with your bank, so you know when you’re running low on funds. Check your balance with an app or text message before writing a check.
Electronic checks also save money for businesses. These payments cost less to process than credit cards, and they are also more accessible because there’s no need to take all of those checks to the bank. What’s more, since businesses get the funds more quickly, their cash flow situation improves. Disclosure and Identification
Businesses are supposed to notify you if they plan to convert your payment to an electronic check. If you’re in a store, look for a sign near the registers saying they’ll turn your paper check into an electronic check. If you’re mailing in a check to pay a bill, the company probably discloses their electronic check policy somewhere in the fine print of an agreement or on the back of your statement. If a cashier puts your check into a machine and hands it back to you after you make a purchase, they’ve likely used your paper check as an electronic check.
Just as you would with a paper check error, you should contact your bank immediately if you find mistakes that arise out of an electronic check transaction. You must notify your bank within 60 days of when the error appeared on your statement, or you may lose certain rights. Your bank may take up to 45 days to investigate your claim and notify you of its findings. This is why it’s crucial to review your bank statements regularly and balance your checking account.
How Checks Clear: When Money Moves After You Write or Deposit Checks
Check clearing is the process of moving money to complete a payment made by check. The process can take several days, but in some cases, things move faster. Ultimately, it depends on how the recipient handles the payment, what type of payment it is, and other factors.
Moving Funds Between Banks
In most cases, the recipient (or payee) submits the check to their bank, and the bank collects funds from the check writer’s bank.
That process often takes two to three business days, but it can take longer—especially for international payments and other unusual circumstances. Intermediaries like correspondent banks and the Federal Reserve often assist with these transactions.
Internal Payments and Check Cashing
Funds sometimes move swiftly. For example, if the check writer and the payee both use the same bank, internal transfers are faster (moving within one business day, for example). Likewise, if you cash a check at the check writer’s bank, the funds immediately come out of that account.
When all goes well, the process is smooth. But depending on your perspective, the timing can be a problem:
- If you received the check, you’re probably in a hurry for it to clear.
- If you wrote the check, you might be hoping for a few extra days to get money into your account.
Logistically, the receiving bank or credit union (where the payee deposits or cashes the check) sends the bill to the bank that the funds are drawn on or to a clearinghouse. Banks originally sent physical examinations to each other, but they increasingly use images of checks instead for improved efficiency. Assuming funds are available and there is no problem with the review, the paying bank transfers money to the receiving bank.
Checks You Write
How long does it take a check to clear after you write it? The answer depends on several factors. In many cases, bills hit your account two to three days after the payee receives your payment. Until the check clears, it is essentially just an IOU—a promise to pay, which you might not fulfil. But the clearing timeline has compressed since the Check 21 Act, which enables banks to handle a more significant number of checks electronically, took effect in October 2004.
Consider the Money Spent
When you write a check, behave as if the money is no longer in your account. In the past, people did this by recording every transaction in check registers. Balancing your checking accounts (whether on paper or electronically) is still a good practice.
You might be accustomed to waiting several days (or longer) to see money leave your account. During that time, the check is called “outstanding,” and you could spend the money on something else. But if you did this, you’d be spending that money twice, committing fraud, and setting yourself up for overdraft fees. Using the same funds twice while waiting for a check to clear is called “taking advantage of the float,” It can lead to numerous problems, including bounced checks.
How Long Do You Have?
It is technically illegal to write a check that you know can’t clear, so only write reviews when you have funds available. In practice, you may have a few days. Processing times may depend on whether you mail the check or hand it to a cashier at a major retailer. Checkout registers equipped with check scanners can instantly convert your paper check into an electronic review. When that happens, expect the bill to hit your bank account quickly.
It Depends on the Payee
Even if you physically hand the check to an individual (such as a friend or a contractor working in your home), that person might use a mobile device to deposit the check. They might even take it to your bank and cash the bill so that it clears instantly. Alternatively, the individual or business might let the tab gather dust for a few weeks before taking it to the bank for deposit. Unfortunately, there’s no way to know for sure what will happen.
As a rule of thumb, assume that funds leave your account about two days after you pay by check, but that timeframe can easily change.
Checks You Receive
If you receive a payment by check, you’re probably eager to use the money: You might simply need it for expenses, or you might have concerns about the check bouncing. So how long do you have to wait for the check to clear?
‘Available’ Does Not Mean Cleared
When someone writes you a check, it has “cleared” as soon as the check writer’s bank transfers money to your bank, and you can spend the funds. However, it’s not always clear if or when the money arrives. Your bank often allows you to spend money from deposited checks—and even withdraw cash—before a check clears.
The Risk Is Yours
You’re responsible for any checks you deposit, so you’ll have to repay any funds you use if the check bounces after you’ve taken the money. Federal law (Regulation CC) requires that banks make at least part of your deposit available to you within a few days. For many transactions, like personal checks, the first $225 becomes available within one business day (if not immediately), and the remainder is open a few days later. Banks make more significant amounts available for other items, such as government-issued checks, cashier’s checks.
Your bank can choose to be more liberal than required by law: The bank may simply operate under the assumption that every check is good, allowing you to withdraw the total amount immediately. Convenient, right? But if that check bounces, you’ve got trouble. The bank will debit your account to take the money back, and that can cause serious problems.
How Long Should You Wait?
It’s wise to be conservative about checks when you don’t have complete confidence in the source. With reviews written from central banks, you’ll often (but not always) find out within a few days if there’s a problem. When checks originate from overseas accounts, things can take much longer. Your best bet is to contact your bank and get a firm answer on the status of the check. Explain your concerns, and ask whether or not you’re taking any risk if you spend the money.
The Fastest Way to Get Money
To make funds available as quickly as possible, deposit checks promptly. Depositing in person with a teller may speed up the process. Alternatively, use remote check deposit when available, and deposit checks early in the day to qualify for that day’s cut-off time. Your bank often places a hold on deposits for five days or so, but the funds become available more quickly in some cases.
If that’s not fast enough, try asking customer service or a manager if there’s any way to free up some of those funds (this is most likely to work if you’re an established customer with no history of bad checks in the account).
Dangers of ‘Cleared’ Checks
If you have any doubts about a “cleared” check, don’t spend the money until you’re satisfied that your bank successfully collected the money. Waiting is inconvenient, but dealing with a negative account balance isn’t much fun either.
Assuming that a check has cleared—before you have proof—is dangerous. Sometimes an honest mistake causes problems, and sometimes con artists take advantage of misunderstandings about how checks clear.
A common scam involves paying somebody with a check (especially a fake cashier’s check or money order) but paying too much. Next, the con artist asks the victim to return the overpayment amount or forward the money to a “shipper” or another associate. The victim sends money that doesn’t exist, and eventually, the bank discovers that the check was wrong. Unfortunately, banks don’t protect consumers in this situation—the victim is responsible for any losses and will need to repay the bank.
How Long Does it Take for a Check to Clear?
When you deposit a check, neither you nor your bank knows if the statement is likely to bounce. It’s wise to wait before spending the money, but how long is long enough—and what should you do to protect yourself from bad checks?
For starters, don’t assume you’re free of risk, even if the money is available. Learn how long it takes for a check to clear or bounce and what this might mean for you.
When Deposited Funds Are Available
By law, your bank makes a certain amount of funds available for withdrawal shortly after you deposit most checks. Unless there are clear signs of fraud or other problems, banks follow a funds availability policy, which details how soon you can use your money.
Many types of checks and deposits are required to be available to you the next business day after a warranty is made, including statements that are deposited in person and are:
- From another account at the same bank or credit union
- From the federal or state government
If you deposit any of these checks at an ATM, the funds will be available to you on the second business day after making the deposit.
Personal checks are a bit different. In most cases, your bank must make the first $200 from personal reviews available within one business day.
Depending on the type of check, the bank may choose to make even more available. For more extensive reviews, the bank may hold the remainder for several more days before making those funds available.
However, when funds become available doesn’t necessarily signify that the check is good or that your bank received those funds from the issuing bank.
It means that they have decided to release that money to you on credit, with the expectation that the check writer’s bank will make those funds available shortly, and the check will clear.
How Long Does It Take for a Check to Clear?
A check has not necessarily cleared just because the money is available in your account or appears on a receipt. Federal law requires your bank to make the funds available to you within a certain amount of time, whether the funds arrived from the other bank or not.
Checks typically take two to three business days to clear or bounce. At this point, the bank has either received funds from the check writer’s bank or discovered that it would not receive those funds.
If the money is transferred without problems, the check has cleared. If the review was fraudulent, or the writer’s account could not cover the amount the bill was for, then the statement is said to have “bounced.”
Risks of Bounced Checks
If you know and trust the person or organisation that wrote the check, it may be safe to spend the money as soon as it becomes available, even if the statement has likely not cleared yet.
But if you don’t know or don’t trust the check writer, it is safer to wait for the check to clear before you spend any of that money. Otherwise, you could open yourself up to a good deal of financial risk.
Even if your bank allows you to walk away with cash or transfer money out, you might have to replace that money later if the deposited check bounces.
If you have already spent the money and do not have enough funds in your account to repay what you now owe to the bank, you can end up owing hundreds or even thousands of dollars to your bank.
A reversed deposit can bring your account into the negative, which means all of your payments will bounce until you fix the problem. You won’t be able to use your debit card for purchases, and any checks you’ve written in the last few days will be returned unpaid.
In addition to finding yourself in negative territory, you also risk paying hefty bank fees after you deposit a bad check. Your bank will charge a fee for insufficient funds, as well as potential overdraft charges. The people or businesses that you attempt to pay with nonexistent funds may also charge you fees.
How to Find Out If a Check Has Cleared
The term “clear” can be confusing, and bank employees may use the word loosely. To be safe, find out precisely when money transfers from the check writer’s bank to your bank and avoid spending the money from checks before that.
Bank employees may assume you want to know when you can spend money subject to a hold. They may not know that checks can bounce long after they’ve been deposited.
If you want to verify if a check has cleared, explain your concerns to somebody at the bank who you trust and know is competent. Speak to a manager or visit a branch in-person to limit confusion.
What to Do About Suspicious Checks
So what do you do about checks that arouse suspicion?
You will be safest if you avoid accepting and depositing checks if you have any concerns about the payment.
Contact the Bank
If a check seems suspicious or you suspect fraud, you can contact the bank where they are supposed to have originated to find out if the account is genuine.
If you are contacting a bank about a suspicious check, find their customer service phone number online. A number printed on a fake review is likely fake as well.
Wait 30 Days
Finding out about a bad check can take weeks. If you have deposited a suspicious statement, wait for 30 days before using any of those funds.
Most problems should arise within that timeframe. Checks from fake accounts and empty accounts should bounce within a few weeks, giving you time to avoid debts with your bank. If the bill individual originates from a foreign bank, wait even longer.
Even after 30 days, there may still be some risk. For example, the account holder may claim that the check was written fraudulently. Even though the check cleared, your bank must return the money, and you may need to figure out who scammed you and consult with an attorney about your options for recourse.
Fake Check Scams
You’re taking several risks any time you deposit a check to your account.
Some of the risks are negligible, but others are significant. People reported more than 27,000 fake check scams to the Federal Trade Commission in 2019. The losses resulting from those fake checks totalled more than $28 million.
Whenever you deposit a check you’re unsure of, be especially careful if it’s an extensive check. Check scams work in part because of common confusion about when checks clear.
If someone sends you a check as payment, but you can’t keep the total amount of the bill, this is likely a scam. They may instruct you to then send back money in some format, such as gift cards, a wire transfer, or goods you buy with the money they sent you.
If you don’t realise the check was fake before sending them funds, you’ll lose the money you sent. You also could be subject to fines or fees if you cannot prove you were a victim rather than part of the scam.
Alternatives to Checks
If you’re worried about bouncing checks, request payment in different forms. Wire transfers are viable alternatives. The money only transfers if it exists and typically appears within a few days.
You’ll still need to practice safety and familiarise yourself with payment dispute or claim processes, as scams can still occur. However, the electronic trial can make it easier to prove your claims of fraud should the need arise.