Is your bank speeding money out of your checking account faster than you can put it in? Do you feel like someone just set your financial hamster wheel on fast-spin?
Welcome to the new reality of check “float” — or lack thereof. Float refers to the time it takes for money to leave your checking account.
If you’ve always paid your bills on time with money to spare, you may never have given float a second thought and probably haven’t noticed its disappearance.
But if you routinely pay bills a few days before payday hoping a paycheck will clear before creditors ask your bank for payment, you’ve probably discovered that playing the float game doesn’t work anymore.
Fear not: We won’t let you sink. There are numerous ways to establish your own “virtual float” to help buy you the time you need to pay your bills.
“Bank float” refers to the time it takes for your creditors (credit card issuers, mortgage servicers, utilities, etc.) to run your check through their bank to your bank to complete your payment.
In 2003, Congress passed the Check Clearing for the 21st Century Act, more commonly known as Check 21.
Banks lobbied heavily for the measure, which mandates that banks use imaging technology to create a substitute check image of your actual check in order to speed processing.
The change cut bank float from a week or more down to 48 hours or less in most cases, thereby virtually eliminating bank float for consumers who had come to depend on the grace period.
While it mandates faster check processing, Check 21 did little to shorten bank hold times, which is the time your bank takes to process your paycheck and other deposits.
The result: Banks eliminated your float while retaining theirs.
A separate type of float — “mail float” — refers to the time it takes your check to physically reach your creditors through the mail. Mail float times have been unaffected by recent legislative changes to banking procedures.
What’s the solution to the end of the traditional consumer grace period? We call it “virtual float.”
After all, float has always largely been a trick of the mind, a bit like setting your wristwatch five minutes ahead so you won’t be late for a meeting. Just because the banks have taken “real” float away doesn’t mean you can’t develop your own techniques to reclaim that lost liquidity cushion.
Signing up for direct deposit can get a paycheck into your bank account faster than any other method.
“It’s not instantaneous, but it is sooner,” says Gail Hillebrand, senior attorney at Consumers Union. “You usually get the money on midnight of the day it’s due. Generally, you’re going to cut a couple days off the bank’s hold time at least.”
Are your bills falling at awkward times of the month? If so, call your creditors and request a change, says Liz Pulliam Weston, author of “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.”
Many creditors — including credit card companies, mortgage companies and utilities — are happy to accommodate you. Some even allow you to choose your due date online.
What strategy works best? Some people prefer to spread their bills out over the month while others like to line them up when they have the most available cash.
“You’ve got to look at your own budget and see where your bills are falling,” says Weston.
“Most people end up running out of money before they run out of month,” she says. “I think it’s easier to group them so you’re dealing with bills once or twice a month rather than every week.”
By customizing the due dates of several credit cards, you can buy yourself up to an extra month before you have to pay for large purchases.
“If you put a transaction on one of your cards right after the closing date, you get extra time before you have to pay it,” Weston says. “That’s putting float to work for you.”
One warning: Label each credit card with its due date so you don’t confuse them. Otherwise, you could be faced with a bill for that new refrigerator within a week.
Want to put high-speed bank technology to work for you? Bank online. This is your personal control panel on which you can monitor direct deposits, activate auto-pay, check your balance and eliminate the need for mail float altogether.
“Most people, once they start online banking, they never turn back,” says Weston. “They quickly get the convenience of it.”
What about hackers? Weston says with modern encryption, online banking is actually far more secure than paying by mail.
“We just got used to writing checks, which is probably the least secure payment method other than cash,” she says.
Some banks and credit card companies offer customizable electronic reminders that alert you when your balance falls below a certain amount, when a bill is due or when a major transaction takes place.
You can customize the alerts on their Web site or within your money tracking software (or both) to receive alerts either on-site, via e-mail or via text message.
“I set them up on the bank and credit card sites,” Weston says. “I like their always-on feature. I just find that I pay more attention when an alert comes through as an e-mail than I do when it pops up in my computer software.”
Here’s an old bookkeeping trick, updated for computer banking: In your accounting software, write yourself a virtual check that guarantees you’ll always have that much more in your account than your register shows.
“I keep a ‘pad’ in my checking account at all times; $100 at least, $500 is better, $1,000 is even better,” Weston says. “The software allows you to write a phony check. It never actually clears but it’s always in the software so it looks like I have $1,000 less in my checking account than I actually do. That’s a way to make sure that I never use the overdraft protection I have.”
Jay MacDonald is a contributing editor based in Texas.