Tardy Slip: Why Banks Take So Long to Credit Deposits

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.

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