What Is a Check Hold?
A check hold is the maximum number of days that a bank can legally hold the money from a check that's been deposited. The bank must credit the funds to the account of the party making the deposit after the check hold period has expired.
The check holding period is generally equal to the number of days it takes for the check to go through the bank's clearing cycle.
Key Takeaways
- The Federal Reserverequires that a bank hold most checks for a reasonable period of time before crediting the customer’s account.
- A "reasonable" period of time can range from two business days to up to six business days.
- A hold can also be placed if a bank has reasonable cause to doubt the collectability of the check.
- The portion of a deposited check that exceeds $5,525 can be held for two to five business days.
How Check Holds Work
The Expedited Funds Availability Act of 1987 (EFAA) mandated that local checks may be held for no longer than two business days. All checks in the United States were considered to be local after 2010. The two-day hold has been extended to five days as a reasonable limit for holding some checks.
The Federal Reserverequires that a bank hold most checks before crediting the customer’s account for no longer than a “reasonable period of time.” This is accepted as two business days for a same-bank check and up to six business days for one that's drawn on another bank. Financial institutions may hold on-us items for one business day following the deposit.
Many use the term EFAA Regulation interchangeably with (Reg) CC.
Banks may decide to place six types of holds on checks:
- Any amount that exceeds a $5,525 deposit can be held. This “remainder” must be made available within a reasonable time, usually two to five business days. Such deposits are considered large deposits.
- Checks that are redeposited may be held for a reasonable period of time, but the bank may not hold the check as being redeposited after it has corrected the deficiency if a customer returns the check due to a missing endorsem*nt or because the check was postdated.
- Banks can hold checks from funds that are repeatedly overdrawn. An account is considered to be repeatedly overdrawn if it's had a negative balance on six or more banking days during the most recent six-month period,or if the account balance was negative by $5,000 or more two times in the most recent six-month period.
- A hold can be placed if a bank has reasonable cause to doubt the collectability of the check. This is referred to as "doubtful collectability." It can occur with postdated checks, checks that are dated six months prior or more, and checks that the paying institution has deemed it won't honor. Banks must provide notice to customers of doubtful collectability, including the specific reason.
- A bank may hold checks that are deposited during emergency conditions such as natural disasters or communications malfunctions. These could prohibit the bank from functioning with its normal processes. A bank can hold such checks until conditions permit them to provide the available funds.
- Banks may hold deposits that are made into the accounts of new customers, defined as those who have held open accounts for less than 30 days. Banks can choose an availability schedule for new customers.
What Is Check 21?
Check 21 is theCheck Clearing for the 21st Century Act. Congress passed it in 2003 to accommodate checks that are processed electronically and to expedite the holding periods for these transactions.
What If My Bank Won't Tell Me How Long It Will Hold a Check I've Deposited?
Regulation CC provides that banks must post their availability policies on their premises at a location where customers who are making deposits are likely to see it.
Can Avoid Having Money Held When I Make a Deposit?
Banks can't hold cash or electronic payments, direct deposits, money orders, cashier’s checks, certified checks, teller’s checks, or state or local government checks. They also can't hold the first $5,525 of traditional checks that aren't in question because they're next-day items. Ask anyone who's paying you to use an alternate means of payment rather than a traditional check if you have concerns and want to ensure that you have access to the money right away.
The Bottom Line
Banks are permitted by law to hold the money for a period of time when they accept a check for deposit. The exact amount of time is determined by various factors but it's typically based on how long it will take the deposit to move through the bank's clearing cycle.
It’s imperative that you understand when the money will be available to you if you deposit a check, particularly a large one. Commercial banks are obligated to disclose their hold policies to all account holders. The bank must provide its policy in written form if you ask for it.
As an enthusiast with a deep understanding of banking regulations and financial systems, I can confidently delve into the intricacies of the article "What Is a Check Hold?" and provide a comprehensive analysis of the concepts presented.
The central theme revolves around the practice of placing holds on checks deposited in banks, a process regulated by the Federal Reserve and the Expedited Funds Availability Act of 1987 (EFAA). Let's break down the key concepts:
-
Check Hold Period:
- The check hold period is the maximum number of days a bank can legally hold the money from a deposited check.
- The duration is generally equivalent to the time it takes for the check to go through the bank's clearing cycle.
-
Federal Reserve Regulations:
- The Federal Reserve mandates that banks hold most checks for a "reasonable period" before crediting the customer's account.
- The reasonable period can range from two business days to up to six business days.
-
Reasons for Holds:
- Holds can be placed based on reasonable doubt about the collectability of the check, large deposit amounts exceeding $5,525, and redeposited checks.
- Banks may hold checks from accounts with a history of repeated overdrafts or during emergency conditions like natural disasters.
-
Expedited Funds Availability Act (EFAA):
- Enacted in 1987, EFAA initially allowed local checks to be held for a maximum of two business days.
- After 2010, all checks in the United States are considered local, and the two-day hold has been extended to five days for certain checks.
-
EFAA Regulation (Reg CC):
- The term EFAA Regulation is used interchangeably with (Reg) CC in the context of check holds.
-
Check 21:
- The Check Clearing for the 21st Century Act, passed in 2003, facilitates electronic processing of checks and expedites holding periods for such transactions.
-
New Customer Holds:
- Banks may hold deposits for new customers (those with accounts open for less than 30 days) and during specific emergency conditions.
-
Check 21 and Electronic Processing:
- Check 21 accommodates electronically processed checks, reflecting the evolution of check clearing methods.
-
Customer Notification:
- Banks must notify customers of doubtful collectability and provide specific reasons for holding a check.
-
Availability Policies:
- Regulation CC mandates that banks must post their availability policies where customers making deposits can easily see them.
-
Exceptions to Holds:
- Cash, electronic payments, direct deposits, money orders, cashier’s checks, certified checks, teller’s checks, and certain traditional checks (first $5,525) are exempt from holds.
-
Disclosure Requirement:
- Banks are obligated to disclose their hold policies to account holders, and customers can request written documentation of the policy.
In conclusion, the article provides a thorough overview of the regulations and practices surrounding check holds, emphasizing the importance of understanding when deposited funds will be available. It underscores the legal framework that governs these processes, ensuring transparency and fair treatment for bank customers.
