The mysteries of the money
February 3, 2008 8:00 PM   Subscribe

How long does it take checks to clear noawadays? How are checks processed?

I'm too often in the position of depositing my paycheck on the same day that my landlord plans to deposit my rent check. Sometimes it seems that it takes my rent check (the one she deposited) five days or so to clear. (Assuming, of course, that she really deposited it the same day she said she did.) But, there also have been a couple times when my rent check bounced because our financial timing was off just a bit -- she deposited my check on Thursday morning, I put my paycheck in on Thursday evening, shit happened.

Is there a standard operating procedure/timeline that someone can explain? Right now it all feels like chance, and that provides for some serious rent-related anxiety.

(And I'm not looking for advice on when to deposit my paycheck. There are factors beyond my control that determine when I actually receive it. Thanks. Also, posted anonymously because it's embarrassing to have unintentionally bounced rent checks.)
posted by anonymous to Work & Money (15 answers total) 1 user marked this as a favorite
Care to give us a clue what country you are in? It kind of helps people answer...

"Also, posted anonymously because it's embarrassing to have unintentionally bounced rent checks."

Oh, please. It wouldn't even be embarrassing to do it on purpose. You are at the mercy of a clearing system. It says nothing at all about you.
posted by Brockles at 8:05 PM on February 3, 2008

OK, yeah, you don't want to be even close to the same day. I want this to be clear - you are playing a losing game by trying to time this.

There was a law passed, commonly referred to as Check 21, that allows for the use of substitute checks to replace actual checks for clearing purposes. One of the side-effects of this is that money comes out of your account a lot sooner than it comes in; effectively, the bank gets a lot more float now.

This is the short answer: the checks you *write* will clear faster; your deposits will not. This is why depositing a check the same day that your landlord does will screw you. You must, must, must have the money in your account the moment you write the check, or you will keep getting nailed. If it feels unfair, that's because it is.

Here's the Federal Reserve's FAQ on Check 21. And here's the Consumer Union.
posted by sachinag at 8:19 PM on February 3, 2008

Your spelling of "check" implies you're in the US, but as no country is specified, it takes about 4 days bank-to-bank in the United Kingdom, and a few weeks between UK and US banks in a regular sense (when there are no special arrangements, etc). On a Google search for "how long does it take to clear a check", the answers I've seen for the US vary between 2 - 5 days.

All this said, my real advice is to get either an arranged overdraft or overdraft protection on your bank account. This is really what it's for, just so that your payments can all balance successfully even if your cashflow and timings are inconvenient.
posted by wackybrit at 8:22 PM on February 3, 2008

This is kinda Google-filtery, but have you read the "How Check Processing Works" article on HowStuffWorks? It's not a bad introduction, and will at least get you the terminology that you'll need to understand further articles. It doesn't get into the post-9/11 electronic processing system, but the basics are the same either way so it's good information to know.

Very, very roughly: when your landlord deposits the check with her bank, they credit her account, and then send the check at the end of the day to a central processing center (typically run by the Federal Reserve). They sort them by bank, and send them back out to the payee's bank (your bank, in other words), who debits the money from your account and then sends you the canceled check at the end of the month with your statement.

In the old days (like, prior to 2004 or so, I think) the checks were physically moved from one place to another in sacks, usually in passenger airplanes. It was a pretty good system, in many cases actually beating the U.S. Mail in getting pieces of paper from one end of the country to another. But there are some obvious downsides to having your financial system linked so intimately to your transportation one, and after 9/11, the Federal Reserve started to push to get an electronic-processing system in place that would eliminate having to haul all those pieces of paper around. The law to enable this is called "Check 21".

Basically, the electronic processing system just replaces having to physically move the checks around from one bank to another with electronic documents. Checks get scanned, either at the depositor's bank or at the Federal Reserve, and then processed electronically. At the end, instead of getting your paper check back, you get a 'substitute check' (or a scan of it).

The new electronic system cuts down the 'float' time pretty dramatically, especially if the depositor and payor's banks are on opposite sides of the country. I think it's usually not same-day, though.

The other thing which would reduce that 'float' time dramatically is if you and your landlord use the same bank. If I write you a check from my account, and give it to you, and you deposit it into the same bank (a different account, obviously), it may be very fast, since it doesn't go into the interbank system at all.

Also, the Federal Reserve has a publication called "Protecting Yourself from Overdraft and Bounced-Check Fees" which you might find interesting.

On preview, I think sachinag has some of the same links.
posted by Kadin2048 at 8:38 PM on February 3, 2008 [2 favorites]

follow-up from the OP
Yep, in the US. And to be clear, I know from my bank that when I deposit a corporate check, the funds are available the same day. (This is not true for personal checks, but that's moot.)

My question specifically involves how long it takes for a personal check of mine to be debited from my account after someone else has deposited it. (And I use a local credit union, so the banks aren't the same.) I understand that it might vary from bank to bank, but that's cool. Just looking for the SOP.

Mostly, I'm looking for information regarding the process. Does the landlord's bank *mail* my check to my bank? Does her bank send my routing number at the end of the business day? Do they send the routing number the second she deposits the check?

These kinds of details are helpful.

Also, I'm not looking to scam, and I'm not looking for advice on how to float checks. I'm just trying to understand the process.
posted by jessamyn at 8:41 PM on February 3, 2008

Your landlord gives his check to a teller. That check gets sent to the "proof" department, either that day or the next, depending on when he or she "cuts over" or tallies and prepares checks for transport. At the proof department, the check is scanned and the image is sent to your bank, who checks your account and authorizes payment and takes the money out of your account. There are several places that it can get delayed (at the teller, in proof at your landlord's bank, in proof at your bank), but if the timing is right, it can easily take less than 48 hours. To be safe, you really need to assume the money is out of your account as soon as you sign the check, or ask your bank about some form of overdraft protection.
posted by Rock Steady at 9:03 PM on February 3, 2008

hm. i'm guessing that your landlord banks at the same bank you do, which significantly cuts down on the transition time. you're also getting burned by the deposit you make, because you're getting it in after their cut off time, usually around 2 pm or so.

best bet is to tell your landlord what the issue is, and to not give them a check until you have made the deposit. or, simply make it harder for them to run to the bank with their deposit by giving them the check at the end of the day instead of the morning.

for what it's worth, i discussed the reconciliation process the banks go through each night. my bank told me that they always process deposits and credits before withdrawals. if your deposited check misses the cutoff, but your landlord doesn't, then you get abounced check and cranky landlord.
posted by lester's sock puppet at 9:09 PM on February 3, 2008

re Transportation:

In the pre-Check21 world (and for the banks that still don't participate in the whole check-scanning business, which is some of them) checks got moved around by a system called "Check Relay". This is the system that the Federal Reserve is trying to eliminate. But of course before it can go away, every bank needs to get the equipment to scan checks and do them electronically -- a lot of smaller banks still don't.

As I said in the earlier comment, you can tell if your check got scanned and processed electronically because you'll see a 'substitute check' for your returned check image when you look at it on your credit union's website, rather than an image that just looks like a regular check.
posted by Kadin2048 at 9:10 PM on February 3, 2008

A Line of Credit linked to your checking account might be cheaper than overdraft protection.

It cost me $14 to borrow $2500 for two weeks late last year.
posted by panamax at 9:26 PM on February 3, 2008

Your bank probably has little signs next to the teller windows that say something like "deposits made after 3:00 p.m. will be credited to the next business day". Thursday evening is Friday to the bank.

There are little desktop scanner/reader devices (lotsa models) that can be used to submit checks now right from an office, no need to schlep into the bank with the big stack of checks. The local Animal Humane Society here has one, as does the last health clinic I went to.

Half to 2/3 of the checks I write for bills are processed electronically now.
posted by gimonca at 5:15 AM on February 4, 2008

Apologies for not answering the question asked, but just talk to your landlord. I'm sure s/he would much rather wait an extra day or two than have your check bounce (not sure about your landlord, but when I deposit checks that bounce, I end up getting a fee) and have to wait for another check from you. At my old apartment, we had a five-day grace period. So even though rent was due on the first, you technically had until the fifth to get a check to them. Maybe your landlord has a grace period as well or is willing to grant you one.

Also, if you do direct deposit (you mentioned a corporation so I'm sure this is possible) then the money usually goes in at midnight on payday morning and a lot less of your checks will bounce since the money will be in before you cut the check.
posted by ml98tu at 6:12 AM on February 4, 2008 [1 favorite]

Definitely get overdraft protection, but don't use it as a loan, only use it to cover any float.
posted by theora55 at 6:31 AM on February 4, 2008

seconding ml98tu i used to have a similar problem and getting direct deposit solved everything because funds were instantly available and I no longer need to stop at the bank every pay day.
posted by DJWeezy at 6:40 AM on February 4, 2008

When you deposit a check it can clear in hours, (less even). Banks and credit unions will be exchanging items more and more quickly, float is no longer something you can count on, and only still around because some institutions aren't keeping up. The technology is there for everyone, no matter how big or small.

Direct Deposit is done VIA ACH and will hit usually when your Financial Institution opens. This is your best way to stay afloat if you're living paycheck to paycheck.

DD is better for your company and your bank too, it is far cheaper, (as in pennies on the dollar) to process.
posted by TheDukeofLancaster at 1:32 PM on February 4, 2008

If it's the same bank you use, it is the same day. Otherwise, it takes 2-3 days. This is just my experience talking.
posted by herbaliser at 1:41 PM on February 4, 2008

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