Tardy Slip: Why Banks Take So Long to Credit Deposits
By: Brian O'Connell

Banks sure are quick about popping consumers with overdraft fees, but they’re much slower when it comes to crediting account deposits. Why the slow dance? Here are some reasons why.

In general, banks are reluctant to credit bank deposits right away, unless the cash comes in from a wire transfer (it’s easier for the bank receiving the deposit to determine whether the depositing bank can cover the deposit).

But paper-based checks are a different story. Big checks (usually for $5,000 or more) and out-of-state checks are almost always held up for a few days so the receiving bank can guarantee the funds are covered. Of course, when you pull cash out of your bank account, that’s normally credited the same day – usually the exact same hour and minute that you extract the money from your account.

By law, financial institutions have to abide by a statute in the Code of Federal Regulations (U.S. Code Title 12, Chapter 41, The Expedited Funds Availability Act). The act stipulates that at least $5,000 of the balance from any out-of-state check has to be credited to the account (and available for customer use) within five business days of the original deposit.

Further muddying the waters is Regulation CC of the Federal Reserve’s “Availability of Fund and Collection of Checks” guidelines.

Language in the guide says that financial institutions can have a “reasonable amount of time” to delay certain types of deposits (usually bigger checks more than $5,000 and out-of-state checks). In street terms, the delay is called a “hold policy” by banks and credit unions can take the "reasonable time" statute and use it as a firewall to hold check deposits for longer than five business days, if a bank’s individual policy allows for that long of a delay.

Critics of bank’s stringent policies on “holds” point to new developments in check deposit technology that allows banks to turn paper checks into digital images, ready for immediate review by financial institutions. That technology is at the core of Check 21, a federal statue enacted in 2004 that enables banks to settle check transactions electronically, ostensibly allowing check withdrawals and deposits to occur much faster than in the days of paper-only check transactions.

But the way the Check 21 rule was written allowed banks and credit unions to speed up the process of taking money out of your account when you wrote a check or used a debit card, but delay crediting your account when a check was deposited into your account.

While the Federal Reserve is currently studying bank check deposit timetables, what can you do to ensure that you’re getting your bank deposits credited as soon as possible?

  • Don’t have any overdrafts. Banks are allowed to hold onto checks longer if you have a recent history of bank overdrafts. Keep your account clean and banks can’t use that as an excuse to delay crediting your deposits.
  • Get direct deposit. Have your employer deposit your check via direct deposit. Those “electronic” checks are usually credited the same day.
  • Use an online payment service. Online payment sites like PayPal do a better job of crediting account deposits (usually because the opposite party in a financial transaction also has a PayPal account, so money can officially change hands in a day or so.)
  • Use a credit union. A 2007 Federal Reserve study reports that credit unions make bank deposits available faster than banks.
  • Get an iPhone electronic bank deposit app. iPhone users can now get their hands on an iPhone deposit app that enables them to move money into their account the same day.

In general, the more ways you have to make banks deposits, the better your chances of having your deposits credited earlier. So, fair or unfair, it’s not up to banks to change their ways – it’s up to you to change yours.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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