Why it takes so long for checks to clear

Jay Haas after the third round of the Greater Hickory Classic at Rock Barn on the Jones Course in Conover, N.C.

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Tess Vigeland: Is there any bigger bogeyman than the banks? The nation's money holders earned more than their share of scorn and rotten tomatoes over the last couple of years. Mostly for all the new-fangled financial products they designed that promptly landed the country into a pickle. But some of things that drive us bank customers bonkers are old-fashioned transactions, like when you deposit a check -- and it takes two decades to clear. OK, a few days, but you get my point. Especially when they have no problem clearing the checks that you write.

Our New York bureau chief Heidi Moore feels your pain and set out to get answers.


Heidi Moore: No one uses checks any more, right? Everything is so electronic now. Carrying a check around feels like paying in beads and wampum or using an abacus.

Bank teller: And this will be going in your checking account?

But when you work for yourself, as I did until recently, you don't have direct deposit. You wait weeks and often months, carrying checks lovingly to the bank and you feel relief that you can pay your bills. Then, the whammy: All that money isn't going to be available for days.

Martha Steger: Four days? What are they doing, reading the biographies of all the bank board of directors or what?

That's freelance writer Martha Steger. She rents out her parents' old farm, but the tenant's checks take time to clear. So to avoid a crunch, she pays the farm's bills out of her own money first.

A lot of small-business owners share her resentment. Randi Minetor does public relations. With the bad economy, companies often take longer to pay her, which makes check holds all the more infuriating. She changed banks several times to get her checks cleared faster, but it's always the same story.

Randi Minetor: Sometimes that money just doesn't come in quite when you want it to, and they have the banks hold it up another three days. It is a tremendous inconvenience for a sole proprietor.

Banks protest that the vast majority of checks do clear in less than two days. Checks over $5,000 can get held for up to seven days.

One common conspiracy theory is that banks hold your money so they can earn interest on it. When the Fed paid banks 5 percent, sure. But for one-quarter of one percent, banks don't bother, says Bob Meara, an analyst with research firm Celent.

Bob Meara: In today's environment, that's not interesting at all to banks.

So why are banks holding up your check?

Nessa Feddis: The reason customers don't get money from checks immediately is that the checks may be returned as unpayable, and if the customer's already spent the money, the bank may suffer the loss.

That's Nessa Feddis, a top lawyer for the American Bankers' Association. She says banks lost $1 billion on bad checks in 2008. And verifying a paper check is still pretty time-consuming. Here's how it works: When you deposit a paper check, your bank sends it to a processing center. The Fed used to have 46 of those. But with people writing fewer checks, the Fed has just one now. It's in Cleveland. That slows things down. Then the check has to make a round trip between your bank and the bank that pays it. All told, the circuit can take around six days.

Technology doesn't fix everything.

Feddis: More and more there is an electronic aspect to check processing, but unlike credit cards, it is not, nor will it ever be, entirely electronic.

All is not lost, however. If your bank likes you, the manager can give you your money faster.

Feddis: Many banks will provide quicker availability for good customers. So people should ask for sooner availability if they need it.

Just don't accept one common excuse: It doesn't take longer if your check is from another state.

I'm Heidi Moore for Marketplace Money.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

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