What Is a Cleared Check?
While terms like "cleared check" and "the check has cleared" are quite common and you've probably encountered them regularly, they may not mean exactly what you thought. Read on for further information about this commonly misunderstood concept in personal banking.
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Function
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A check is a form of payment that is issued from one entity to another. The check represents a monetary payment that will be transferred from the payer's account to the payee's account. In some situations, a check is a safer form of payment than cash as it provides proof of payment and can only be cashed by the person to whom it is written.
Identification
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A cleared check refers to a check that has been verified with the issuer's bank and is approved for payment. The appropriate funds exist within the issuer's account and the check is good. Funds are transferred from the issuer's account to the payee's bank.
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Misconceptions
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Confusion in the concept of a cleared check arises from the assumption that a check is cleared once funds have been made available. Banks are required by law to make funds available for withdrawal within a few days; however, it may take several weeks for the check to be processed and cleared with the issuer's bank. Essentially, the bank is loaning you the money to speed the process. The check could still bounce during this process if appropriate funds are not available. Since the bank is required to make the funds available to you within a couple of days, you may have already used the money by the time the check has bounced. Unfortunately, if the check bounces, you are responsible for reimbursing the bank.
Warning
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Many scammers take advantage of legal loopholes surround the check clearing process by conning victims into cashing a check and wiring a lesser amount of money back. The funds are made available and the victim believes he's making money for providing assistance or being paid for a good or service while sending an overpayment to a third party. The check eventually bounces and the victim must return the money to the bank. This type of scam may even be practiced with fraudulent cashier's checks.
Prevention/Solution
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In order to prevent becoming the victim of this type of "cleared check" fraud, never agree to wiring money to an issuer or third party. If you are suspicious that a cashier's check is fake, contact the bank to verify authenticity.
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