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Understanding Why Banks Hold Checks

SmartAsset: Understanding Why Banks Hold Checks

Depositing a paper check into your bank account could mean waiting a few days before you can access those funds. Banks routinely place holds on checks before crediting the amount to your account. Why do banks hold checks? There are actually several reasons why your bank might do so, all of which should be explained in its funds’ availability policy. Here’s what you need to know. A financial advisor can help you create a financial plan for your savings and investing goals.

Can a Bank Hold a Check You Deposit?

Yes, banks can place holds on check deposits, including checks that are deposited into personal or business checking and savings accounts. A bank hold is essentially a temporary delay that blocks you from accessing funds from the check for a certain period of time.

Bank holds are not illegal and in fact, it’s fairly common for banks to hold checks as part of their funds availability policies. Fund availability simply means when you’ll be able to use or withdraw the money you’ve deposited. Your bank can specify different availability windows for different types of deposits. There may be one waiting period for paper checks and another for cash deposits or electronic deposits made via ACH.

Why Do Banks Hold Checks?

Banks can hold checks for a number of reasons and whether you’re subject to a hold can depend on how long your account has been open, the amount and type of the check and your banking history. Here are seven common reasons why banks hold checks:

  • Check verification: Banks may sometimes hold checks in order to verify that it’s good and that the person who wrote the check has sufficient funds to cover the amount.
  • New account: If you just opened your bank account, it’s possible you might be subject to check holds initially. For example, your bank may hold any checks you deposit in the first 30 days after account opening.
  • Redeposits: If you tried to deposit a check once and it was returned for insufficient funds, then try to deposit it again, the bank may place a hold on it. In doing so, the bank is trying to avoid having the check returned yet again, which could result in additional fees.
  • Large checks: Depositing a larger check could result in a hold if the bank wants to first verify that the check-writer has enough money to cover it. Banks must generally make the first $5,525 available to you according to its normal funds’ availability policy. A hold may be placed on the remaining check amount.
  • Banking history: Banks can also consider your account activity and history when deciding when to place a hold on a check. For example, if you’ve deposited checks in the past that have bounced or you’ve deposited checks and made transactions that put your account into overdraft, the bank may decide to put a hold on subsequent deposits.
  • Suspected fraud: Your bank may hold a check you deposit if it has reason to believe that the check is fraudulent. In that case, the bank will attempt to verify the check before releasing the funds to you.
  • Emergency situations: If there’s an emergency that affects the bank’s ability to perform its essential functions, any funds deposited may be held until the situation resolves. For example, if the bank’s online banking system is attacked by hackers the bank might freeze all pending deposits until the attack is under control.

Check holds are designed to protect both you and the bank. They allow the bank time to ensure that the check deposit will go through so that you’re not in danger of going into overdraft or having the check returned. That’s a plus since overdraft and non-sufficient funds fees can quickly pile up.

How Long Can a Bank Hold a Check By Law?

SmartAsset: Understanding Why Banks Hold Checks

Banks cannot place holds on checks indefinitely. Federal Reserve rules require banks to hold checks for a “reasonable period of time” which means two business days for checks issued by the same bank and no more than seven business days for checks that are drawn from a different bank.

It’s possible that a bank may impose a longer hold window on checks in certain circumstances if the bank can demonstrate that such a hold is necessary. Those circumstances include all of the scenarios listed above.

Bank holds don’t necessarily mean you won’t be able to use any of the funds from a deposited check. Generally, if you’re depositing checks that total $200 or less in person at a branch, you can access the full amount the next business day. For checks over $200, you should be able to access $200 the next business day and the remaining amount the second business day unless a longer holding period applies.

Can You Ask a Bank to Remove a Hold on a Check?

You can ask your bank to remove a check hold, but that doesn’t guarantee the bank will comply. If the bank has reason to believe that the check may be fraudulent or that the check writer lacks sufficient funds to cover it, the hold may remain in place for the full window that’s allowed by law.

If you plan to ask your bank to remove a check hold, it helps to first understand why the hold exists in the first place. That can give you an idea of how likely the bank might be to honor your request. Again, however, you may just have to wait the holding period out until the bank verifies the check.

How to Avoid Check Holds

The simplest way to avoid check holds at your bank is to use other methods to receive funds owed to you. For example, enrolling in direct deposit could help you get paid up to two days faster and it can save your employer the trouble of having to write out a paper check. Or you might use person-to-person payment apps to receive money that’s owed to you by friends or family members in place of a check.

Observing good financial habits can help you build trust with your bank so that a hold is less likely when depositing checks. Some of the ways you can do that include:

  • Taking care to avoid overdrafts
  • Depositing checks that you know to be good
  • Keeping your account open and not bank-hopping
  • Cashing checks instead of depositing them

It’s also a good idea to monitor your account regularly for any suspicious or fraudulent activity, as those kinds of red flags could cause the bank to freeze your account. In that scenario, you wouldn’t be able to access any of the money in your account until the freeze is listed. Setting up banking alerts or notifications is a simple way to keep track of your account activity.

The Bottom Line

SmartAsset: Understanding Why Banks Hold Checks

Why do banks hold checks? It’s not to cause any inconvenience to you. In fact, check holds can protect you from costly overdraft fees or fraud. Understanding your bank’s funds availability policy can help you estimate when you’ll be able to access any checks you deposit as it varies from bank to bank.

Checking Account Tips

  • Consider talking to your financial advisor about how to find the right checking account for your needs. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goalsget started now.
  • When comparing checking accounts, consider what you’ll pay in fees and what features or benefits you might be able to unlock. Traditional banks typically charge monthly maintenance fees for checking accounts while online banks might offer free checking options. Some banks offer interest checking accounts or rewards checking, either of which could be an incentive to choose one bank over another.

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