Dear Quentin,
I have a banking question for which I would like to get further clarification. I received an insurance-claim check for $22,000, written against a Bank of America account.
On Tuesday morning, I deposited the check into my bank account. But none of the funds will be available until essentially five business days later.
Why does it take that many days for an internal “your branch to my account” transfer of funds? Other than verifying the availability of the funds, what on earth is happening that requires five days?
Curious Customer
“Checks are an old-fashioned payment method, and rely on more archaic processes to clear.”
MarketWatch illustration
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Dear Curious,
Given that settling the average insurance claim can take anywhere from 30 days or more for automobile insurance to nearly five months for homeowners insurance, I’m assuming your question about your check taking five days to clear is because a) you are simply curious as to the mechanics of paying by check or b) you’ve waited so long by this point that the final days appear more torturous than the preceding months.
When a bank takes time to process a check, it’s doing so to ensure the check’s validity. Checks are ripe for fraud. In fact, the Better Business Bureau recommends signing checks in black gel ink, which it says is more difficult to tamper with than regular blue or black pens. “The Crown” actress Claire Foy recently refused to sign an autograph in blue ink; some experts say blue biro is easier to scan for nefarious purposes, while others say such concerns are overblown.
Checks are an old-fashioned payment method, and rely on more archaic processes to clear. “We would assume a hold has been placed on the check referenced,” a Bank of America spokesperson told MarketWatch. “A hold can be placed on a check for a variety of reasons — the amount of the check, concerns about the validity of the check, etc. The hold allows us time to research and verify the check, including contacting the maker of the check if needed.” Read more here.
Paper checks rely on a legacy network
Paper-based payments rely on a legacy network to process and return checks. For instance, an income-tax refund can take anywhere from three to eight weeks to arrive. The paying bank has a certain amount of time to verify that the check is valid and authorized. If the check is not payable, it is returned and the bank is not notified until the check is returned. It would be unwise for the bank of deposit to withdraw money based on the check’s amount before its validity is established.
Federal law also allows the bank to hold some of the money for a period of time, depending on the type of check and the amount. For a check like the one you received from the insurance company, banks must generally make the first $5,525 available by the second business day after the “banking day” of deposit, although there are exceptions that allow the first $5,525 to be held longer. An amount over $5,525 may be held even longer than that.
A common scam: Consumers are fooled into cashing a check for a third party. The scammer tells a person with a U.S.-based bank account that they inherited a large sum of money, but must deposit the amount and wire the scammer a portion of the funds in order to receive a generous commission. However, the check is returned and the customer is on the hook for the withdrawn funds. (This New Yorker story on the subject will give you goosebumps.)
And if you are a victim of a scam? Contact your bank, file a police report, and put a fraud alert on your credit reports to prevent any further damage by a bad actor who may have access to your personal details. Even if you are fortunate enough to have the money returned, it could take months. That, I hope, puts your five-day wait into perspective. Congratulations on receiving your $22,000 insurance payout. Whatever it’s for, I hope you enjoy putting it to good use.
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