Being forced to wait to withdraw funds that you deposited leads to many misunderstandings among bank customers. As a law firm that handles hundreds, if not thousands, of real estate transactions every year, we often see this problem. As the head of our Banking and Financial Institutions Practice, I am frequently asked, “Why won’t the bank let me have my money?”

Before I answer the question, I need to explain the check collection process. If you deposit a check in your account at Bank A, your bank sends that check to Bank B, the bank on which the check is written, for payment. Bank B has the right to bounce the check (return it without paying it) until midnight of the next day (known as the “Midnight Deadline”) after it gets the check. That happens even with a bank or certified check. If Bank B’s customer does not have enough money or there are other issues, such as a stop-payment order, a forged signature, or a missing endorsement, or even worse, if it is a counterfeit bank check, then Bank B bounces the check and notifies Bank A. Even if the check appears to be a bank check, it might be counterfeit, and if so, it will bounce. 

If there is no reason not to pay the check, Bank B does nothing, and the right to bounce the check expires at the Midnight Deadline. Your bank delays the availability of the funds to make sure that it does not get notice that the check bounced. Your bank doesn’t want to take the risk that the check bounces, so it waits until the time to get notice of a bounced check expires. Your bank may know you and may trust you, but it doesn’t necessarily know who gave you the check.

There is a federal law known as the Expedited Funds Availability Act that limits how long a bank may hold a deposit before making the funds available to you. Even though the number of checks that the Federal Reserve processed for banks every day has declined dramatically from 18 billion in 1989, just after the law was adopted, to “only” 3.4 billion in 2022, that’s still a lot of checks every day. The law only imposes a maximum limit on the bank’s ability to delay availability. Your bank always has the right to release the funds faster and take a greater risk that the check will bounce after the depositor has disappeared with the funds. The law also allows longer holds on some checks, such as those for more than $5,525, an amount that changes periodically due to inflation. 

If you deposit a check for less than $5,525, your bank must make the funds available to you quickly – in most cases within two business days, unless an exception applies. Although there is a risk that the period for bouncing a check has not expired, the Federal Reserve has determined that the risk is reasonable. However, for checks over $5,525, your bank may delay availability longer, usually five business days after deposit. 

Even if you deposit a $1 million bank or certified check, you are unlikely to be able to wire the funds to purchase property the next day. Why? Because your bank doesn’t want the problems that result if it wires the money out on Monday and then gets a notice on Wednesday that the check bounced because it was counterfeit. Ultimately, you will almost certainly have to reimburse the bank for the check that you deposited that bounced, but it is not worth the aggravation for the bank to have to chase you.

Here are some follow-up questions that we have been asked over the years:

1. Does it take longer for a large check to clear? Why do I have to wait longer to get that money? If you deposit two checks in Bank A drawn on Bank B, one for $100 and one for $1,000,000, it takes just as long for both checks to clear. You have to wait longer to get access to the proceeds of the larger check because the dollar amount of the risk to the bank is higher. When the Federal Reserve adopted the rules under the Expedited Funds Availability Act, it shifted the risk that a check would bounce. Billions of checks are deposited every day. Very few bounce, so the Federal Reserve decided that the banks should take a greater risk on checks for small amounts by making funds available a bit faster. However, for checks for larger dollar amounts, the Federal Reserve allowed the bank to hold the funds longer because the dollars involved, and thus the potential loss to the bank, were higher. 
2. Why do I have to wait so long to have access to the money that I deposited by check when I opened the account? If you open an account at a bank where you do not already have another account, the bank may impose a longer waiting period if the account has been open for less than 30 days.
3. If I need the money right away, what should I do? Your best choice is not to deposit a check. Instead, transfer the money into your bank account with a wire transfer. In most cases, a wire transfer from another bank in the United States is available immediately and always no later than the next business day.
4. What if I can’t get a wire transfer? We advise clients to talk to their representative at the bank in advance. Some banks will waive the hold period on a case-by-case basis. It is also possible for your bank to manually verify that the Midnight Deadline on a specific check has expired. However, that takes a lot of human effort, so please don’t ask your bank to do that for a $100 check when the total balance in your account is $500.
5. What other exceptions could delay the availability of funds? In addition to new accounts and large dollar amount checks, a bank can delay availability if you redeposit a check that was previously deposited and bounced, if your account is habitually overdrawn, or if your bank has “reasonable cause to doubt” that the check will be paid.
6. If my bank says that the check is “cleared,” does that mean that it will not bounce? No, it only means that you are allowed to withdraw the funds. If the check bounces properly, after you withdraw the funds, you must still repay the amount that you withdrew. The right to bounce a check expires at the Midnight Deadline, which is only a few days after you deposit the check, so waiting a few extra days before you use the funds is prudent.
7. What can I do for extra protection? I teach a course in “Scams Targeting Attorneys and Their Escrow Accounts.” The most important thing I teach is that you should know the true identity of the person who is writing the check. Is it someone you have known for many years? Is it someone reliable? Does the business transaction giving rise to the check make economic sense? I have dealt with many counterfeit or forged checks over the years, and the bankers I deal with tell me that the problem is getting worse. Modern printing equipment and scanning equipment make it easier than ever to create fraudulent checks. When you receive a check, you should always take a step back, look at the transaction, and consider whether it makes sense. The well-known principle still applies. If it seems too good to be true, it probably is.

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Jay L. Hack

Partner at Gallet Dreyer & Berkey, LLP

Mr. Hack’s primary practice focus is providing a full range of legal services to banks and other financial institutions.

His broad-based financial institutions' practice addresses a full range of legal needs for banks and other regulated institutions. He has chartered numerous de novo banks and has prepared stock offering materials to satisfy both FDIC and... Read More