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Bankrate.com

Check-holding limits

Dear Dr. Don,
How long can a credit union hold a deposit of an out-of-town check?
Finis Fed-up

Dear Finis,
Commercial banks, savings banks, savings and loans and credit unions all have a funds-availability policy that determines when a deposit will be available for your use.

The key to funds availability is the determination whether the deposited check is considered local or nonlocal. With certain exceptions, funds deposited as nonlocal checks have to be available by the fifth business day following the day of deposit.

Funds deposited as local checks have to be made available by the second business day following the day of deposit. With some deposits, the financial institution is required to make the money available on the next business day.

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The following types of deposits must be made available on the first business day following the banking day of deposit ("next-day availability"):

1. Cash deposited in person.

2. Electronic payments received by the institution for deposit in an account. An electronic payment is considered received (deposited) when the institution has received both payment in collected funds and information on the account and the amount to be credited. (Under other rules, funds for most electronic deposits are made available on the day of deposit.)

3. U.S. Treasury checks deposited in an account held by a payee of the check. Unlike deposit types listed in four through eight below, which pertain to deposits made in person, Treasury checks deposited at an ATM owned by your institution (a "proprietary" ATM) must be accorded next-day availability.

4. U.S. Postal Service money orders deposited in person into an account held by a payee of the check.

5. Federal Reserve Bank and Federal Home Loan Bank checks deposited in person into an account held by a payee of the check.

6. State or local government checks deposited in person into an account held by a payee of the check, if the institution is in the same state as the payer of the check. (Note: If the customer desires next-day availability of funds from these checks, the bank may require use of a special deposit slip.)

7. Cashier's, certified, or teller's checks deposited in person into an account held by a payee of the check. (Note: If the customer desires next-day availability of funds from these checks, the bank may require use of a special deposit slip.)

8. Checks drawn on an account held by the institution ("on-us checks") deposited in person to a bank employee or an on-premises ATM or night depository, if the branch or branches involved are in the same state or check-processing region.

9. Deposits that include some checks of types not listed above. The first $100 (or the amount of the deposit if it is less than $100) of non-"next-day" checks must be made available the next day.

Exceptions: When deposits of types one, four, five, six and seven are not made in person (for example, when they are made at an ATM), the funds must be made available by the second business day. Deposits, cash or check, made at an ATM that the bank does not own (a "nonproprietary" ATM) must be made available by the fifth business day.

Source: The Federal Reserve Board's Guide for Financial Institutions Compliance with Regulation CC

Financial institutions are allowed to treat differently new customers, customers with a prior history of overdrawing their account, checks deposited during emergency conditions and checks that the bank is doubtful about their ability to collect.

Regulation CC and The Expedited Funds Availability Act of 1987 provide the standards for financial institutions in this area.

EFAA provides a standard of two-thirds as a rule-making guide for the Federal Reserve Board. This means that the hold period for nonlocal checks should be the approximate length of time when two-thirds of returned checks are returned.

This means that banks should only be at risk for one-third of checks returned to them, a standard approved by Congress in the EFAA. Under Regulation CC, financial institutions are required to post their funds-availability policy and provide a notice of funds availability on the front of all preprinted deposit slips.

-- Updated: April 9, 2003

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