How Are Deposited Checks Processed?

Traditionally, checks deposited with a bank teller or at an ATM are picked up by carriers and taken to a central processing site run by the bank where the deposits were made. There, the checks are sorted before being moved to the bank where the funds will be drawn. These funds are paid to the bank where the checks were deposited.

Traditional Method

Most of the time, the bank where you deposit a check makes the deposited funds available on the assumption that the check will be paid later. If there are insufficient funds in the account on which the check is drawn, the check is sent back to the original bank of first deposit.

Check Hold Policies

This process can take several days. This is why banks have policies to hold larger checks for extended periods--to ensure that they get paid before making the funds available to you.

Check 21

Effective October 28, 2004, all financial institutions are to comply with the Check Clearing for the 21st Century Act, or Check 21, a federal law aimed at improving the efficiency and safety of the nation's check payment system.

Goals

One of the primary goals of Check 21 is to reduce the time it takes for checks to clear. Banks must rely more on automation and less on manual check processing.

New Method

Now banks may choose to replace a deposited check with a substitute check--a copy made from the electronic image of the original check. Information from that check is treated as the payer's authorization to be used to make an electronic payment, which typically clears the bank the following day.

References

• Wachovia: Check 21
• Wells Fargo: Check 21 (PDF)
• Bank of America: Check 21