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Everyone with a bank account should understand check clearing. Bankrate explains it.
What is check clearing?
Check clearing refers to the movement of a check from the deposit bank to the drawing bank through a process known as the “clearing cycle.” This is the manner in which payments from checking accounts are made and processed.
Check clearing is simply a process whereby funds move from one account to another to settle a check payment. The amount is usually credited to the bank account of deposit and an equivalent amount debited at the bank from which it is drawn. During the check-clearing cycle, the local drafts or checks deposited in the payee’s bank are presented at the payer’s bank for the payment.
The process begins when a check is deposited to a credit union or bank. The bank then requests the money from the check writer’s bank. The bank transfers the money from the account of the check writer before moving it to the receiver bank. The check is said to be cleared when the receiver’s bank has received the check from the check writer’s bank.
The time taken to complete the check-clearing process varies. Typically, it should take up to five working days for the written check to hit the receiver’s account. There are instances where the payment cannot be honored. This may be caused by insufficient funds in the account of the check writer. In this scenario, the bank may take a few extra days to process the return of the unpaid check. Note that the time required to clear the check is highly dependent on the time the check was deposited.
Example of check clearing
If someone has an outstanding electricity bill, she may decide to pay by check. The electricity service provider sends the check to its bank to deposit the amount into its account. The check goes through the check-clearing process, and the payer’s account is debited for the check amount. When this cycle is complete, the check has cleared.
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