How Check Float Does or Doesn't Work

How Check Float Works

Mature woman writing in cheque book, mid section
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Check float refers to the amount of time it takes for money to leave your checking account. The “float” is the period after payment is made with a check, but before the funds are transferred from the check writer’s account. This time period is significant because it’s as if the funds are in two places at once: in the check writer’s account and in the check recipient’s possession.

How Check Float Works

When you make a payment with a check, the funds don’t leave your account immediately when you write the check (unless you used online bill pay and your bank takes the money immediately).

Instead, the recipient needs to deposit (or cash) the check. Even after the check is deposited, it can take time for the funds to be deducted from your account, so you can potentially have several days of float time.

Example: you write a check for your mortgage or rent and drop it in the mail. The payee credits your account – you are current on your payments simply because the check arrived on time. Next, your mortgage company deposits the check by taking it to their bank (bringing the check to a branch, mailing a batch of checks, or depositing the check remotely by taking a picture of the check). Their bank will request funds from your bank, and your bank will take the money out of your checking account.

There are several ways that this process is delayed:

  • Mail delivery takes several days
  • The recipient might wait another day or more to deposit the check
  • The recipient’s bank might take a day (or more) to request funds from your bank

    Abusing Check Float

    When you write a check, you are legally supposed to have funds available in your account to cover the payment. However, checks are rarely processed instantly (although it’s possible, and the process keeps getting faster). As a result, you might get away with “playing the float” when you write a check before you have funds available.

    Perhaps you know that it will take some time for the payment to be processed, and you know that your paycheck will be deposited in the meantime. Alternatively, you might plan to receive (and deposit) checks from others – hoping that anybody who received your checks will be slow to deposit.

    In the past, it was easier to take advantage of float time. Now, it’s easier to get caught, and the consequences include fees and fines, potential legal trouble, and damage to your credit.

    Faster Processing

    Check 21: in 2004, Congress passed the Check Clearing for the 21st Century Act (known as Check 21). This Act allows banks to use electronic versions of checks to operate more efficiently. They don’t send the paper checks to each other anymore – they use a substitute check. Substitute checks are images of your plain old paper check, but they’re considered official, and they can be used to deduct funds from your account.

    Electronic check conversion: checks that you hand over to retailers can also be processed faster. When somebody runs your check through a check reader at the checkout counter, the check may have been converted to an electronic payment, which means they don’t need to get that check to the bank.

    Faster bank processing means that you’ll have less time to get money into your checking account. While you may have had a week or more in the good old days, technology has changed things considerably.

    Fees, Fees, Fees

    If you bounce checks, you’re going to pay fees: your bank and your payee will charge you.

    Overdraft protection: your bank may cover the check if you’ve got an overdraft protection plan on your account, but it will likely cost you. Fees have been rising steadily over the years, and you can expect to pay $30 or more for this protection.

    NSF: if you don’t have overdraft protection on your checking account, your bank will likely charge a fee for insufficient funds – and they’ll deny payment to your payee.

    Returned checks: if you bounce a check and your bank won’t pay, you face several fees.

    First, your payee may charge a “returned check” fee, which is simply a penalty to discourage you from writing a bad check. You may also have to pay a late payment fee if you’re unable to pay using a different method before your payment is due.

    Other Complications

    Depending on the type of business you write the check to, things can get complicated. Most mortgage companies won’t foreclose on your home if you bounce a check, but they may report late payments if you fall more than 30 days behind on payments. In addition, bouncing a check may be a violation of your contract, which causes a variety of problems.

    Some credit card companies will increase your rate (or remove any promotional rates) if you bounce a check or pay late. Other credit card companies might join in the feeding frenzy if you have a universal default clause.

    Finally, you may end up in databases of people who have a history of writing bad checks. ChexSystems and other consumer reporting companies keep track of individuals who bounce checks and go negative in their accounts. If you get a reputation for being irresponsible, banks and others may not want to do business with you. Retailers who use check verification services may refuse to accept checks from you as well.