The "float" is that time lapse between when a check is deposited and when the money becomes available. For example, a
person
gives the landlord a rent check on Tuesday, but the money won't be in the bank until Friday.
The float time for paper checks is between two and five days. Banks use this time to verify the legitimacy of a check. In
the meantime, the bank or credit union earns interest on dormant checks, which has caused some consumer groups to accuse banks
of exploiting the float to their own advantage.
Legislation requires banks to make
money from local
checks available within two business days of deposit. Money from checks
drawn on out-of-state banks must be available within five banking days.
Often, banks hold checks on new accounts where the bank doesn't know the customer or the check is for a large amount. In
reality, most checks clear through the Federal Reserve banking system in two to three days.
If you must float
checks, follow these guidelines:
- Do not pay all
of your large bills at once unless the checks are covered. Some banks
clear checks for mortgage and car payments immediately. That means if
a bunch of checks hit the bank at once, the biggest check is cleared
first. If it bounces, subsequent checks bounce.
- Consider getting
overdraft protection. Be careful, though -- many banks charge as much
to cover your check as they do to bounce it.
- Use telephone
or online banking to transfer money from your savings or other accounts
to cover checks drawn against your checking account. Transfer the money
back when the checks are covered.
The float
also works against you when it comes to getting access to checks you've
been given. Some tips for avoiding that:
- Don't make
deposits at ATMs. A bank can set an earlier cutoff time for ATM deposits
than teller deposits, resulting in checks taking longer to clear. And
a bank where you are not an account holder does not have to make the
money available until the fifth business day.
- If money is coming
to you from out of state, consider having it sent through Western Union.
