Basics of How Checks Clear
What Happens When You Write (or Deposit) a Check?
Check clearing is the process of moving money to complete a payment made by check. The recipient submits the check to their bank, and the bank collects funds from the check writer’s bank. The process can happen internally if the check writer and the payee both use the same bank. Otherwise, intermediaries like correspondent banks or the Federal Reserve might assist with the transaction.
If 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 come up with the money.
Logistically, the receiving bank or credit union (where the check is deposited or cashed) sends the check in paper or electronic form to the bank that the funds are drawn on, or to a clearing house that lies in between the two banks. Assuming funds are available and there is no problem with the check, the money is transferred.
Clearing Checks You Write
How long does it take a check to clear after you write it? There’s no single answer because the speed depends on several factors. It usually takes a few days for the checks you write to hit your account (until that happens, a check is essentially just an IOU), but that timeline is compressing since the Check 21 law passed in 2004.
Any time you write a check, it's best to act 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 used to waiting several days (or longer) to see money to actually leave your account. During that time, the check is called "outstanding," and you could potentially spend the money on something else (but you'd be spending it twice, committing fraud, and setting yourself up for overdraft fees).
How long do you have to ensure that the money is in your account? It is technically illegal to write a check that you know can’t clear, so stick to writing checks when you have funds available. In practice, you may actually have a few days. Did you mail the check, or hand it to a cashier at a major retailer? Checkout registers often come equipped with check scanners that instantly convert your paper check into an electronic check — and you can be sure that the check will be sent to your bank as quickly as possible (perhaps even that same day).
Even if you hand the check to an individual (such as a friend you're repaying or a plumber who works on your home), that person might use a mobile device to deposit the check. On the other hand, there's always the possibility that the individual or business will let the check gather dust for a few weeks before taking it to the bank for deposit. Unfortunately, there's no way to know for sure.
If you want a basic rule of thumb, it’s best to assume that funds will leave your account about two days after you pay by check, but that timeframe can easily change.
Using Checks You Receive
If you've been given a payment by check, you're probably antsy to use the money: you might need it for expenses, or you might have doubts about whether or not the check will bounce. So how long do you have to wait?
“Available” does not mean cleared: When somebody writes you a check, it has "cleared" when the money has transferred from the check writer’s account and you can spend it. However, it's not always clear if or when the money has arrived. Your bank will usually allow you to spend money from deposited checks — and even withdraw cash — before a check has actually cleared.
But 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 items like personal checks, the first $200 is available within one business day (if not immediately), and the remainder will become available a few days. Other items, such as government-issued checks, cashier's checks, and USPS money orders allow larger amounts to be withdrawn quickly.
Your bank is free to be more liberal than the law requires: the bank can simply assume that any check is good and allow you to withdraw the full 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 lead to serious problems.
How long should you wait before assuming a check has cleared? There's no definitive answer, but it’s wise to be conservative about checks you're unsure of. With checks written from major banks, you'll often (but not always) find out within a few days if there's any problem. When checks come from overseas accounts, things can take much longer. Your best bet is to contact your bank and get a firm answer as to the status of the check. Explain your concerns, and ask whether or not you're taking any risk if you spend the money.
For more details, see How Long to Wait After Depositing a Check.
To make funds available as quickly as possible, get them deposited: use remote check deposit when available, and deposit checks early in the day to make that day's cut-off time. Your bank will often tell you that your deposits will be held for five days or so, but in many cases, the funds will come available more quickly. 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 might work if you're an established customer with no history of bad checks in the account).
Dangers of "Cleared" Checks
If you have any doubt about a "cleared" check, don’t spend the money until you’re satisfied that your bank has collected the money it needs. Waiting is inconvenient, but dealing with a negative account balance isn't much fun either.
Assuming that a check has cleared 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) and asking the victim to send back the overpayment amount or forward the money to a “shipper.” The victim sends money that doesn’t exist, and eventually, the bank finds out the check was bad. Unfortunately, banks don’t protect consumers in this situation — the victim is responsible for any losses and will need to repay the bank.